These Are 5 Of The Worst Cannabis Acquisitions We’ve Seen In The Last Years

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So far, 2022 is already proving to be a volatile year for the global economy and we haven’t even finished the first month. From rising interest rates to surging COVID cases, we expect the market to continue to trade in volatility.

Although we are concerned about the market in the short term, many companies reported better than expected quarterly financial results and we are optimistic about this trend. Over the next month, several top North American cannabis companies are expected to release quarterly results and we continue to closely monitor the sector ahead of that.

Over the past five years, we have seen many consolidations in the cannabis industry and most transactions have been associated with Canadian Licensed Producers (LPs). In mid-2019, the acquisition model began to shift away from Canadian LPs and towards US Multi-State Operators (MSOs).

Today, we’ve highlighted 5 of the cannabis industry’s largest acquisitions (from a transaction cost perspective) that we consider to be some of the worst deals in the history of the industry.

  1. Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB) – Acquired MedReleaf for C$3.2 billion in 2018
  2. Aurora Cannabis Inc. (TSX: ACB) (Nasdaq: ACB) – Acquired CanniMed for C$1.23 billion in 2018
  3. Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC) – Originally acquired Acreage Holdings for $3.4 billion (USD) in 2019
  4. Constellation Brands (Nasdaq: STZ) – Invested over $4 billion (USD) in Canopy Growth in 2018
  5. Altria Inc. (NYSE: MO) – Invested approx. $1.8 billion (USD) in Cronos Group (TSX: CRON) (Nasdaq: CRON) in 2020

What you need to know about these 5 transactions

Aurora Cannabis is the only company to make this list twice and we were cautious with the Canadian LP due to the dilution associated with the deals. These acquisitions were made as the hype around the cannabis opportunity in Canada reached its peak and many facilities that were part of the deals were delisted or closed.

Canopy Growth attempted to gain first-mover advantage in the US cannabis market through the acquisition of Acreage Holdings. The deal won’t be done until cannabis is federally legalized in the United States. Nearly a year after the acquisition was announced, Acreage was under considerable pressure with the rest of the cannabis industry and Canopy Growth reworked the terms of the deal to align with the lower valuation.

Constellation Brands and Altria were the first big companies to invest in cannabis businesses. Since cannabis is federally illegal in the United States, these companies targeted operators based in countries where cannabis was federally legal. For this reason, Canopy Growth and Cronos Group were seen as attractive ways to play on the legal cannabis trend that is unfolding globally.

Updated valuations could slow consolidation trend

Over the past year, there has been a major shift in the mergers and acquisitions (M&A) landscape and companies have focused on completing smaller or complementary transactions. From a management cost perspective, these types of acquisitions are more attractive to companies that already have stretched balance sheets.

Although the types of businesses acquired have changed, the pace of consolidation has shown no signs of slowing. Going forward, we expect an increase in the number of acquisitions in the cannabis sector and this is a trend that our readers should be aware of.

In the short term, we believe that the acquisition pact could be negatively impacted by the recent weakness in the cannabis sector. Several large North American cannabis companies are trading at new 52-week lows and management teams may be less inclined to acquire companies with stocks.

If you would like to learn more about acquisitions already made in the cannabis sector, please send an e-mail to [email protected] with the topic “Cannabis Acquisitions That Didn’t Work Out” to add to our mailing list.

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Written by

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to market to leading companies in the cannabis industry in the United States and abroad.

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