facebook

Merger madness: Canada’s marijuana industry enters consolidation phase – Business

Canada’s cannabis industry is shedding its wild adolescence and maturing into adulthood as it prepares for the legalization of recreational marijuana this summer. Companies are bulking up, knowing the promise of billions of dollars will draw bigger players and more competition.

That path to adulthood though is expensive and fraught with risk. So, it’s perhaps inevitable that Canada’s cannabis players are looking to mergers to scale up and stave off competition.

Consultancy Ernst & Young surveyed nearly a dozen licensed producers about the state of the industry and where things are headed. 

“Many believe that consolidation is inevitable, leaving a few large players post-legalization,” Ernst & Young said in a report this week.

Bulk up and diversify

Evidence of that strategy is everywhere right now. A marijuana company from Alberta called Aurora Cannabis has launched a hostile takeover bid for Saskatchewan-based CanniMed Therapeutics

lab-science

Pot is now big businesses, dominating labs and Bay Street boardrooms. (Mason Trinca/Yakima Herald-Republic/Associated Press)

CanniMed would rather hunt than be hunted. So it launched its own bid and announced a plan to buy an Ontario-based company called Newstrike Resources. They say that merger would result in single entity worth more than half a billion dollars. (You may have heard of Newstrike. It’s the company that partnered with the Tragically Hip earlier this year — one more sign that everyone’s trying to get a piece of the market.)

Aurora is pushing ahead with the hostile bid. But it’s also looking at ways of making these deals less costly and less painful. It issued a statement last week indicating it has ways of nudging unwilling participants into making a deal. That’s because Aurora just bought a greenhouse design firm and the company says it will use that firm as a way of pressuring rival producers into those “partnerships.”

An offer you can’t refuse

Chuck Rifici is one of Canada’s leading investors in the cannabis space. (He helped found Tweed and is the company’s former CEO. He was until recently on the board of Aurora.) He says these deals make sense at this stage because pot companies can use their sky-high stock values to throw weight around and buy up smaller players in all-stock deals.

“It makes sense to do deals where you’re buying optionality in a future market for not much in stock,” he told CBC News. “These smaller companies are in a position to fill in gaps and get a nice premium on their stock and the larger guys are essentially printing cheap paper to do those deals.

“It’s win-win.”

ITALY-MARIJUANA/

Marijuana companies have seen their stocks soar, giving them more weight to throw around when buying out smaller companies. (Alessandro Bianchi/Reuters)

The proposed CanniMed and Aurora deal is a great example of that, he said. CanniMed is well established as a medical player looking to diversify into the lifestyle side of the sector. On the opposite side of the coin, Aurora wants to broaden by acquiring something more medically focused.

In the Ernst & Young report, Canada’s licensed producers said that sort of consolidation is bound to continue.

“The majority of respondents believe that the cannabis industry will continue to consolidate,” the report said. “Inorganic growth is expected to persist, leaving a few large players.”

And no one, it seems, is immune. Even the country’s largest publicly traded cannabis producer is trying to navigate a quickly changing landscape.

Bruce Linton, the CEO Canopy Growth (formerly known as Tweed) told Ernst & Young he expects the field to narrow considerably. 

Marijuana Warning Labels

Experts say the industry will consolidate to a few big growers and a bunch of “craft” producers making smaller amounts. (Seth Perlman/Associated Press)

“Over the long term, I see an industry with two or three major, relevant players and bunch of craft producers,” he was quoted as saying in the report.

New players

This is all happening against the backdrop of a quickly changing regulatory landscape. Rules are being written on the fly and the provinces aren’t necessarily all moving in the same direction or on the same timeline.

Another X factor is new players that haven’t jumped in yet but are no doubt readying to behind the scenes. Existing companies have carved out a toe-hold from which they can build a business. But those unknowns have forced them to guess how regulations will come down.

There are no sure bets, but when it comes to survival, size matters. Hence the mergers.

“It’s still a craft industry, even though you have people that have non-craft valuations.” Rifici says. 

Canopy 20171114

Canada’s next cash crop has pushed the industry into a mergers and acquistions phase. (Robert F. Bukaty/Canadian Press/Associated Press)

With the floodgates about to open, many firms are facing a looming capacity crunch. So producers who are licensed now are spending money hand over foot trying to maximize production. Canopy doubled its revenues in its second-quarter results but still lost more than $1 million. Linton told Ernst & Young that’s just part of the process at this stage.

Growing up fast

“You’re spending four times as much as you would normally in order to be ready for a year from now,” he said.

Many of these companies are likely just trying to stick around long enough to get bought out once the new laws are in place.

Much like adolescents , all companies grow up eventually. With a marijuana industry that Deloitte recently pegged as being worth almost $23 billion, perhaps we shouldn’t be surprised to see these recalcitrant teenagers don a suit and tie and start acting like grown-ups.


Source link


CBC News Canada

CBC News Canada

CBC News Canada is Canada's Online Information Source. Comprehensive web site for news, entertainment, sports, business, and a complete guide to CBC-TV, CBC Radio and CBC News Network
Buds2Go.ca is not responsible for, nor do we always share the opinions of the content posted on our website through our partners or independent authors.

Leave a Reply


What is a Sativa?

Sativa strains of medicinal marijuana are usually uplifting and stimulating. If you’ve ever smoked or ingested cannabis that makes everything funny and puts you in a great mood, it was probably from a Sativa strain. It creates a feeling of comfort, non-drowsy, and usually introspective highs. The effects of smoking or ingesting a Sativa makes them particularly popular among artists and creatives. The most popular medicinal benefits range from treating mental and behavioral problems, to treating depression, stress and ADHD.

What is an Indica?

The major difference between Sativa’s and Indica’s is while a Sativa can make you feel alert, active, and aware, an Indica will have a relaxing feel on the body. The physical effects of an Indica strain commonly include a drowsy and mellow mood with stress and pain relief. Indica’s are one of the more suggested strains when using it for medicinal purposes as it effectively treats sleeping disorders such as insomnia, fibromyalgia, body aches and pains. Indica’s are also commonly used for treating Multiple Sclerosis, Parkinson’s disease, Fibromyalgia and Lupus

Why Choose Hybrid?

The benefits to smoking or ingesting a Hybrid strain are simply as follows. Hybrid’s offer the best of both worlds combining several qualities of each containing strain. Some Hybrid’s are Indica dominant, which will offer pain relief and / or mellow mood, however may contain up to 50% Sativa so it will not make you too drowsy. Other’s may offer a Sativa dominant strain, which will encompass several calming benefits and pain relief, but also give a mellow, yet energetic high.

Why use Buds2Go?

We offer a guaranteed, reliable medicinal marijuana buying and shipping experience for our members. There are still thousands of people who don’t live in areas that are served by local dispensaries such as Vancouver and Victoria BC. We offer mail order marijuana in canada that is both fast and discreet and always include tracking numbers. Mail Order Medical Marijuana - Medicinal Cannabis Dispensary - Buy Weed Online