Marijuana M&A: Distressed, smaller and failed deals expected in 2023

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Chart showing cannabis mergers and acquisitions in 2022.

Are blockbuster, billion-dollar marijuana mergers and acquisitions behind us?

Possibly, say insiders. But they also predict 2023 will feature brisk cannabis M&A activity, with the overall value of transactions possibly topping the $3.2 billion recorded in 2022.

In general, last year’s trend of smaller deals is expected to continue in 2023, with cannabis entrepreneurs eager to sell their companies – even if it means fetching a lower price.

Similarly, tough business conditions will likely mean many distressed marijuana companies will be ripe for consolidation.

But industry insiders also predict that some transactions will fail to close because of the difficult business climate – high interest rates and recession fears, for starters.

And many companies that aren’t acquired will be forced to shutter.

Last year’s $3.2 billion in marijuana M&A deals was down from a record $10.3 billion in 2021 and more in line with levels seen in 2019 and 2020, according to New York-based Viridian Capital Partners.

While 2021 featured several big deals, last year was slower because of higher interest rates, less available funding and recession worries.

Those same challenges are expected to weigh on cannabis companies this year and spur executives at struggling companies to seek a rescue.

“2023 will be a banner year in rescue financing, distressed M&A, and restructuring both in Canada and the U.S.,” Frank Colombo, director of data analytics at New York-based Viridian Capital Advisors, wrote in the Jan. 13 edition of his newsletter.

“One of the largest MSOs recently told us that they expected most of their M&A activity to be purchasing distressed assets.”

Colombo also cited Lowell Farms' recent announcement that it had hired Canaccord Genuity to investigate acquisitions, divestitures, financing or restructuring options, saying the news is a prime example of the industry's current state.

Colombo called it "the equivalent of the old Sherlock Holmes line that 'the game is afoot.'"

In the meantime, Lowell, a vertically integrated cannabis company based in Salinas, California, is expanding its brand to neighboring Arizona.

"This opportunity to use the brand to drive revenues without having to build infrastructure and/or get licensed in other states is potentially quite attractive," Colombo said of potential suitors in an email to MJBizDaily.

The expected pickup in M&A activity comes as the marijuana industry grapples with a variety of challenges, including:

"If we can return to more of a stable and optimistic-looking macro environment, I think our industry will become more stable and grow," said Jason Klein, a Washington DC-based partner at Rimon Law.

"But I think if we continue to be in an expensive credit market where a good number of people are talking about a recession, we’re definitely in a negative or contraction-type trend."

Smaller deals

Cannabis M&A in 2022 saw deals valued at far less than the boom year of 2021, according to Viridian data.

In 2022, for example, no cannabis M&A transactions worth more than $500 million closed.

A proposed merger initially valued last March at approximately $2 billion - between multistate operators Cresco Labs and Columbia Care - had been scheduled to close in December.

But that date has been postponed to March, raising questions among some industry executives about whether the blockbuster transaction will indeed close.

Beyond the proposed Cresco-Columbia Care deal, the total value of cannabis M&A deals valued at less than $500 million last year grew compared to 2020 - but declined compared to 2021.

In particular, transaction values of deals worth $100 million to $500 million totaled:

  • $550 million in 2020.
  • $3.9 billion in 2021.
  • $1.9 billion in 2022.

This year, more sellers are looking to exit and are willing take a lower price, insiders said.

Expect consolidation of distressed assets in 2023, they added. Those that aren’t acquired face shutting down.

“2023 will be merciless, where we’ll be separating the wheat from the chaff,” Elena Mervine, Miami-based managing director in the M&A Transaction Advisory Group at CohnReznick, told MJBizDaily.

“It will definitely be survival of the fittest,” she said. “And it has been already, but this is going to be like a real bloodbath.”

Private equity and distressed M&A

Mervine noted that some insiders are predicting an influx of interest from private equity firms in California and other mature, oversaturated markets.

In January 2022, D4C, the cannabis branch of Seattle-based private equity investment firm D4 Investments, spearheaded a merger between California brands Cream of the Crop Gardens and West Coast Trading to create the Talarya Brands portfolio. That group now also includes Cosmic, a concentrates brand, and Wanderers, a vegan, sugar-free edibles brand.

This year, the company's portfolio sold a total of $27.9 million in flower, pre-rolls, vapes and concentrates. Talarya's Cream of the Crop ranked 21st in the flower category in the California market in 2022, according to data collected by Seattle-based cannabis analytics company Headset.

“Our team of investors has specific expertise in rolling up distressed assets and turning them into multi-billion dollar exits,” Talarya Brands CEO Dustin Milner told MJBizDaily via email.

“This isn’t their first rodeo and we are executing a playbook that has proven successful in other industries.”

That playbook includes data-driven analysis, close attention to return on investment, a disciplined approach to debt and acquiring assets that are both distressed and have strong potential for profitability, Milner said.

The consolidation play raised $6 million to acquire more distressed assets, which might include a cultivation facility in Northern California or other supply-chain and sales channels that fill any gaps, Milner said.

Talarya Brands is also looking at opportunities in Colorado, Illinois, Nevada and Washington state.

Milner said the cannabis industry is ripe for consolidation in those more established markets.

“We really are looking at this industry from a completely different angle,” he said.

“So much in cannabis is around, 'That's what we've always done.’ And we’re constantly asking, 'Is this the best way to do it? Or can we look to other industries for best practices and new technologies that could be incorporated into our business?'

"We have a lot to learn from brand-focused companies that are successful in other industries."

Expect less cash in compensation

Todd Williams, executive vice president of M&A and real estate at Denver-based Schwazze, is focused on increasing the vertically integrated cannabis company’s presence in Colorado and New Mexico in 2023.

The company has been on a buying spree, purchasing retail outlets, cultivation facilities and manufacturing assets.

Williams said he has been receiving calls from sellers of distressed assets but that there’s more interest in general in selling from all corners of the industry.

“It’s been difficult for some people, and the macroeconomic environment doesn’t look great for the foreseeable future," Williams told MJBizDaily.

"Cannabis companies will have to weather that period, so, from that standpoint, people are more willing to talk about an acquisition.”

Sellers are also willing to take less cash in compensation packages.

“Previously, we might have paid 50% or more in cash, and I think those days are no longer with us,” he said.

“We are certainly (paying) less than 50% cash and people are open to those conversations.”

A higher risk of failed transactions

Two failed deals in 2022 show how fluctuating valuations and changing market conditions can hurt the chances of an M&A deal closing:

  • Ascend Wellness walked away from its bid to buy MedMen Enterprise's New York assets.
  • Verano Holdings halted its acquisition of Minnesota-based Goodness Growth Holdings. Goodness Growth is now seeking damages.

Mia Getlin, a partner at Lake Oswego, Oregon-based Lotus Law Group, works on both the buying and selling side with marijuana clients.

“What I saw were fewer deals, smaller deals, and because for most of the year prices were declining quite rapidly, deals failing,” she said about 2022 in an interview with MJBizDaily.

Oregon cannabis retail is particularly saturated.

A 2020 report by Verilife estimated that Oregon had the highest number of dispensaries per capita than any other state, with 16.5 stores per 100,000 people.

Getlin saw multiple instances in Oregon and Washington state where an acquisition target’s revenue rapidly declined before the deal closed.

When buyers tried to renegotiate a lower price, some sellers balked and deals failed.

Perry Salzhauer, a partner at Portland-based Green Light Law Group, also saw a number of deals dissolve.

“If you couldn’t get it closed quickly, it likely fell apart,” he said.

Kate Robertson can be reached at