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5 Mergers and Acquisitions Stories Investors Should Be Watching

Apr 9, 2020 • 7:27 AM EDT
9 MIN READ  •  By Michael Berger
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During the last month, we have seen a significant spike in the amount of mergers and acquisitions (M&A) in the cannabis sector and this is a trend that we are excited about. When you combine tough capital markets with attractive valuations, you have a recipe for increased M&A activity and we have been focused on the businesses that are benefiting from this activity.

From Canadian producers to US brands, the entire cannabis sector is consolidating and we are bullish on the recent uptick in such activity. Today, we want to highlight 5 cannabis companies that have been executing on an acquisition strategy and that have caught our attention. Going forward, we expect to see further consolidation and these are businesses to be aware of.

Emerald Organic Products: An Acquisition Story to be Aware of

The last month has been busy for Emerald Organic Products, Inc. (OTC: EMOR) and we are favorable on how the story has advanced in such a short period of time. During this time, the company has announced several strategic agreements and we are favorable on how these transactions have advanced the business.

During the last month, Emerald Organic Products announced a few acquisitions that we expect to quickly prove to be accretive and we are favorable on how the agreements have expanded the company’s total addressable market (TAM). Below, we have highlighted three transactions that our readers need to be aware of:

  • In late March, Emerald Organic Products entered into a definitive agreement to acquire Carie Health Inc., a leading telehealth and virtual care technology and service solutions company. Carie offers a fully-proprietary end-to-end telehealth solution and we are favorable on the growth prospects that are associated with it.
  • Before the Carie agreement, Emerald Organic Products acquired 51% of Bonsa Health, a leading digital pharmacy that is capable of providing same day delivery of prescribed medications in the US.
  • Prior to the Bonsa agreement, Emerald Organic Products announced the formation of Corona Diagnostics, LLC, a joint venture partnership with Todos Medical Ltd. (OTCQB: TOMDF) to address the much-needed demand for COVID-19 screening and diagnostic testing in the US

Through a series of organic and inorganic growth initiatives, Emerald Organic Products has been able to significantly advance its story and we are favorable on these developments. Going forward, we expect to see the management team integrate the assets and for the team to find significant synergies between the companies. We believe that Emerald Organic Products is in the early innings of a major growth cycle and is an opportunity to be watching.

Emerald Organic Products is a diversified health sciences company that is focused on providing consumers with proprietary health and wellness products. The company is levered to several high-growth industries and we are favorable on the number of the revenue streams that fall under the business. From COVID-19 to cannabidiol (CBD), we believe that the company represents a well-rounded opportunity and will be keeping a close eye on it.

Pure Harvest Cannabis Group: A US Acquisition Story

When it comes to consolidating the US cannabis market, Pure Harvest Cannabis Group, Inc. (PHCG) is one of the first names that comes to mind. During the last few months, the company has been working tirelessly on the completion of previously announced acquisitions and we are impressed with how the management team has been able to execute.

The last month has been busy for Pure Harvest and we are favorable on how such activity has ramped up. During the last two weeks, the company has reported two significant transactions, and we are bullish on the growth prospects of the combined company. We believe that Pure Harvest is in the early innings of a major expansion and is an opportunity to be aware of.

The first transaction reported by Pure Harvest in March was an agreement to acquire Sofa King Medical Wellness Products (SKM), a vertically integrated cannabis operator located in Dumont, Colorado. The dispensary is strategically located near Colorado’s most famous ski resorts and we are favorable on the amount of value that the location adds to the entire operation. Shortly after this announcement, Pure Harvest announced an agreement to acquire 51% of How Smooth It Is, Inc. (HSII), a licensed medical cannabis processor that is based in Riverdale, Michigan. Last year, the state legalized recreational cannabis and we expect Pure Harvest to benefit from having leverage to this market.

Although Pure Harvest has been advancing a number of important company initiatives, the shares have been under pressure and have traded lower with the rest of the cannabis industry. Once the assets in Colorado and Michigan are fully operational, Pure Harvest will be generating significant revenues and we will be monitoring how the management team is able to execute on these projects. Due to the management team’s track record, we are confident in their ability to execute and find this to be an important aspect of the story.

MedMen Enterprises: Cancels an Acquisition and Shakes Up the Team

Not all cannabis companies have benefited from the recent increase in the amount of M&A activity. MedMen Enterprises Inc. (MMEN.CN) (MMNNF) would not be considered to be a beneficiary of the trend as it recently cancelled a major acquisition.

From a capital standpoint, MedMen Enterprises has not lived up to expectations and has been forced to sell non-core assets that are owned by the company. Last month, the US cannabis retailer announced another debt financing with Gotham Green Partners and we will monitor how it uses the capital for growth.

One of the most significant recent (ish) developments for MedMen was the cancellation of the acquisition of Pharmacann. The acquisition was expected to significantly enhance the company’s leverage to the US cannabis market and we will monitor how the story evolves from here. By cancelling this acquisition, the company seems to be laser focused on the opportunity in California, Florida, and Nevada.

From a management team standpoint, MedMen Enterprises has been less than stellar. Earlier this year, the company announced several significant changes to the team and we believe that this was a necessary step. Going forward, we are interested in seeing if the new team is able to turn the business around and is an opportunity to be aware of.

Innovative Industrial Properties: A Real Estate Acquisition Story

Innovative Industrial Properties, Inc. (IIPR) has been on a buying spree and has announced several strategic acquisitions so far this year. The company is the first and only real estate company on the New York Stock Exchange that is focused on the regulated US cannabis market.

Earlier this month, Innovative Industrial Properties announced the acquisition of a property in Athol, Massachusetts, which comprises approximately 199,000 square feet of industrial space. This is a market that the NYSE traded cannabis REIT has been focused on and one that we are bullish on from a long-term standpoint.

2020 has been a busy year for Innovative Industrial Properties and we expect to see additional acquistions reported in the back half of the year. The coronavirus seems to have slowed down the pace of the company’s M&A activity and we expect this trend to be transitory. The virus is expected to adversely impact a number of cannabis companies and this weakness will create opportunity for Innovative Industrial Properties.

As of April 2, 2020, Innovative Industrial Properties owned 54 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Pennsylvania and Virginia, totaling approximately 4.0 million rentable square feet (including approximately 1.2 million rentable square feet under development/redevelopment), which were 99.1% leased (based on square footage) with a weighted-average remaining lease term of approximately 16.1 years. We believe that the company has attractive growth prospects and will monitor how the management team continues to add to its portfolio of cannabis real estate assets.

Auxly Cannabis Group: Coming Back from the Dead?

Last week, Auxly Cannabis Group Inc. (XLY.V) (CBWTF) jumped on the acquisition bandwagon and announced an agreement with Natures Crops International to acquire the exclusive global rights to Ahiflower® oil for use in the company’s diverse portfolio of cannabis products. Natures Crops is a vertically integrated grower and manufacturer of plant-based specialty oils and we will monitor how the relationship advances from here.

According to the multi-year agreement, Natures Crops will provide Auxly with a proprietary ingredient to be used in its current portfolio of cannabis products. The proprietary ingredient will also be used for the development of next generation cannabis health products that Auxly will commercialize when it is legally permitted to do so and we believe that the agreement provides the Canadian cannabis producer with a significant growth opportunity.

During the last year, Auxly has been relatively quiet from an M&A standpoint and we are favorable on the change in strategy. The company is comprised of several wholly owned subsidiaries and we will monitor how the story advances from here. This agreement might be the start of an important trend for the business and we will continue to keep an eye on the opportunity.

 

 

 

 

 

Pursuant to an agreement between StoneBridge Partners LLC and Pure Harvest Cannabis Group (PHCG) we have been hired for a period of 90 days beginning March 11, 2020 and ending June 11, 2020 to publicly disseminate information about (PHCG) including on the Website and other media including Facebook and Twitter. We are being paid $7,500 per month (PHCG) for or were paid “0” shares of restricted common shares. We own zero shares of (PHCG), which we purchased in the open market. We plan to sell the “ZERO” shares of (PHCG) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (PHCG) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.

Pursuant to an agreement between StoneBridge Partners LLC and Emerald Organic Products Inc. (EMOR) we have been hired for a period of 180 days beginning January 13, 2020 and ending July 13, 2020 to publicly disseminate information about (EMOR) including on the Website and other media including Facebook and Twitter. We are being paid $6,500 per month (EMOR) for or were paid “0” shares of restricted common shares. We own zero shares of (EMOR), which we purchased in the open market. We plan to sell the “ZERO” shares of (EMOR) that we hold during the time the Website and/or Facebook and Twitter Information recommends that investors or visitors to the website purchase without further notice to you. We may buy or sell additional shares of (EMOR) in the open market at any time, including before, during or after the Website and Information, provide public dissemination of favorable Information.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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