Cannabis firms in M&A hunt look beyond Canada for growth

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Canadian medical cannabis companies are increasingly looking internationally for acquisitions to tap growth while consolidation in the country’s marijuana sector continues to steam ahead.

Last year, 140 U.S. cannabis companies were targets of mergers and acquisitions, a substantial increase over 2017’s 86, according to data compiled by Viridian Capital Advisors and shared with Marijuana Business Daily.

“We’ve seen an increase in M&A activity of Canadian companies on the (Canadian Securities Exchange) targeting American operations,” said Harrison Phillips, vice president of New York-based Viridian.

Exchange rules bar cannabis companies on the Toronto Stock Exchange and the TSX Venture Exchange from holding any interest in U.S. cannabis businesses – except hemp, which is now federally legal. This limitation incentivizes those firms to look within Canada to consolidate and branch out to other global medical markets.

CSE-listed companies face no such restrictions.

Overseas, “you can see a significant increase in M&A, particularly in the last three quarters of 2018, following an increase of capital raises (outside North America),” Phillips said.

“M&A in the cannabis sector has accelerated dramatically, quarter-over-quarter and year-to-year.”

Cannabis firms in Canada raised a record 11.96 billion Canadian dollars ($9 billion) in 2018, helping fuel the recent acquisition binge.

Canadian consolidation

Consolidation within Canada, meanwhile, also ramped up in 2018.

Last year, Canadian cannabis companies were the buyers in 207 M&A transactions – more than double 2017’s 81, according to Viridian’s data.

Beacon Securities analyst Russell Stanley expects more “survival-type M&A” rather than growth-related mergers and acquisitions in Canada.

“The bigger players in Canada have what they need, and the consolidation we see in Canada is among the smaller players who realize they need additional scale in order to compete,” Stanley told Marijuana Business Daily.

Added Phillips: “A key trend, if you look at the buyers, is that Canadian companies increased their share of buying compared to the total M&A.”

Overseas edge

M&A transactions where the target is located outside North America tripled last year to 36.

In 2018, there were more deals involving cannabis companies outside Canada than within the country.

“A number of the Canadian LPs have been working to establish beachheads in Germany, partly as a means to reaching the rest of Europe,” Phillips said.

“I wouldn’t rule out Southeast Asia. There are a number of markets there that are taking a turn toward legalization.”

Peter Homberg, a partner at Dentons law firm in Germany, said cannabis mergers and acquisitions are picking up in Europe.

Companies are looking to tap potential demand in Europe, which has a much higher ceiling than Canada, he said.

“If there’s a company in Greece or another country which is seen as a valuable market, a large company will look at acquiring it instead of incorporating their own company, acquiring the licenses, going through the painful process,” he said.

“Just buy somebody who has the license already. It’s much easier and quicker.”

Matt Lamers can be reached at

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