Shareholders of Ontario-based cannabis producer Emblem approved a 173 million Canadian dollar ($128 million) buyout from vertically integrated company Aleafia Health in a deal that puts the two companies at the forefront of a wave of consolidation in the marijuana industry.
The all-stock deal was approved by 93% of Emblem shareholders March 6, exceeding the 66% needed to complete the transaction.
Emblem shareholders will own roughly 41% of the combined company.
In an interview with Marijuana Business Daily before this week’s shareholder vote, Emblem CEO Nick Dean said the merger is partly a move to secure a suitable partner as companies pair up.
“We believe 2019 is going to be a year of consolidation, and we want to be at the forefront of that consolidation rather than at the back end,” he said.
“What we think is going to happen is there is going to be significant consolidation through 2019 and there’s going to be some players left at the end who haven’t found a partner. That’s when we’re going to start seeing deals in the sector that are below or at market.”
The wave of consolidation within Canada’s cannabis industry has already started.
Last year, Canadian cannabis companies were the buyers in 207 M&A transactions – more than double the previous year’s 81.
Dean said the combined company will leverage strength in scale, including a healthy balance sheet, distribution, a good product portfolio and an international footprint – versus simply massive farms.
“As of Oct. 17, the market shifted away from promotion and speculation and toward fundamentals,” he said.
“A lot of companies are going to start being evaluated based on traditional fundamentals. We will start being evaluated like a consumer packaged goods company, and therefore there could be a reconciliation in the market values of some of our competitors.”
Separately, Aleafia Health received conditional approval to graduate to the Toronto Stock Exchange.
Currently, the company’s shares trade on the Toronto Venture Exchange under the ticker symbol ALEF.
Matt Lamers can be reached at firstname.lastname@example.org