(You can have cannabis finance content such as this delivered directly to your inbox. Simply sign up here for our weekly MJBizFinance newsletter.)
Deal of the Week / In partnership with Viridian Capital Advisors
Skymint acquisition sets up battle for consolidation in Michigan
On Sept. 21, Skymint, one of Michigan’s leading vertically integrated cannabis companies, completed a three-part transaction that included an equity raise, a debt raise and an acquisition.
The acquisition is of particular interest as it lays the groundwork for a consolidation battle in Michigan between Skymint and Gage Growth/TerrAscend.
Regardless of who wins, the fight itself has the potential to change the competitive cannabis landscape in the Midwestern state.
In the deal, Skymint acquired 3Fifteen Cannabis, a portfolio company of Merida Capital Holdings. Financial terms were not disclosed, including the amount and composition of total consideration and any valuation metrics.
The table above compares Skymint and Gage/TerrAscend in the Michigan market.
Key similarities and differences
- Skymint has a head start in the number of retail stores. 3Fifteen has 12 stores in operation, which brings the combined company to 27 operating storefronts. And Skymint has plans to add another 18 before the end of 2022.
- Skymint appears to be more concentrated in several key markets, with a strategy of dominating those markets, whereas Gage is more spread out. The two companies compete directly in a few markets, including Detroit, Grand Rapids and Lansing. But, generally, their locations are distinct.
- Neither company has a wholesale presence in Michigan, electing to cultivate and produce only for their stores.
- Both companies have a similar ratio of cultivation square footage to stores.
- Gage, the exclusive brand partner for Cookies in Michigan, has four co-branded stores. Skymint has none.
- Gage also makes use of 10 contract cultivators, whereas Skymint grows its own cannabis. The greater flexibility of contract growers would give Gage an advantage in a declining wholesale price environment (which Michigan is experiencing) and gives Gage the ability to react to changing competitive conditions. The flipside is that having cultivation in-house gives Skymint better control over operations and might allow for more consistent quality.
- Although both companies are well-financed, Gage has greater financial strength through its ownership by TerrAscend.
Conclusion: The battle is too close to call, but it undoubtedly will be one to observe closely.
How investing in technology now can help attract funding for the long haul
Cannabis investors are looking for future winners. Sure, it’d be nice if you already have a track record of winning in your market, but because the legal industry is still so young, the likelihood is often remote.
So how do you set yourself and your company up for that future win that investors are looking for? Think ahead and figure out what today’s trends are telling you about tomorrow.
In a recent story for MJBizMagazine, Omar Sacirbey looked at five things cannabis retailers need to know to prepare for the future – and the overarching theme is a focus on integrating technology into your operations.
Sure, investing in technology also requires money to upgrade, but the dividends could be handsome if you find a way to invest now.
So what are the key things you should be looking at improving?
- Online ordering: Demand for the convenience of e-commerce likely will grow now that consumers have gotten used to it during the COVID-19 pandemic.
- Consumer analytics: Knowing whom your customers are and what they want will be critical to proving your adaptability as competition grows.
- How to compete with the mainstream: Amazon wants to be the single-source shopping center for everything, and there’s no reason to think the online sales giant won’t come for cannabis once federal legalization is achieved. Be prepared to tell potential investors how you plan to beat Amazon when it enters the ring.
– Jenel Stelton-Holtmeier