These Are 5 Of The Worst Cannabis Sector Acquisitions We Have Seen In The Last Few Years

So far, 2022 is already proving to be a volatile year for the global economy and we are not even through the first month. From rising interest rates to surging COVID cases, we expect the market to continue to trade in a volatile way. 

Although we are concerned with the market in the near-term, many companies have reported better-than-expected quarterly financial results and we are bullish on this trend. Over the next month, several high-profile North American cannabis companies are expected to report quarterly earnings and we continue to closely follow the sector ahead of this. 

During the last five years, we have seen a lot of consolidation in the cannabis sector and most of the transactions were associated with Canadian Licensed Producers (LPs). In mid-2019, the acquisition pattern started to shift away from Canadian LPs and toward United States (US) multi-state operators (MSOs). 

Today, we highlighted 5 of the largest acquisitions in the cannabis sector (from a cost of transaction standpoint) which we consider to be some of the worst transactions 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 (USD) billion in 2019
4. Constellation Brands (Nasdaq: STZ) – Invested more than $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 To Know About These 5 Transactions 

Aurora Cannabis is the only company to be featured twice in this list and we have been cautious with the Canadian LP due to the dilution that was associated with the transactions. These acquisitions were made when the hype of the Canadian cannabis opportunity was peaking and many of the facilities that were a part of the transactions have been written off or shut down.

Canopy Growth attempted to gain a first-mover advantage on the US cannabis market via the acquisition of Acreage Holdings. The deal will not be completed until cannabis is legal at the federal level in the US. Almost a year after the acquisition was announced, Acreage was under considerable pressure with the rest of the cannabis sector and Canopy Growth re-worked the terms of the transaction to be in-line with the lower valuation. 

Constellation Brands and Altria were the first major corporations to invest in cannabis companies. Since cannabis is illegal at the federal level in the US, these businesses targeted operators that were based in countries where cannabis was federally legal. For this reason, Canopy Growth and Cronos Group were considered to be attractive ways to play the legal cannabis trend that is taking place on the global level. 

Discounted Valuations Could Slow Down the Consolidation Trend

During the last year, there has been a major shift in the merger and acquisition (M&A) landscape and companies have been focused on making smaller/bolt-on transactions. From a managing costs standpoint, these types of acquisitions are more attractive for companies that already have strained balance sheets. 

Although the types of companies being acquired has changed, the pace of consolidation has shown no signs of slowing down. Going forward, we expect to see 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 near-term, we believe the pact of acquisitions could be negatively impacted by the recent weakness in the cannabis sector. Several leading North American cannabis companies are trading at new 52-week lows and management teams may be less inclined to acquire businesses with stock. 

If you are interested in learning more about previously completed acquisitions in the cannabis sector, please send an email to support@technical420.com with the subject “Cannabis Acquisitions That Have Not Worked” to be added to our distribution list. 

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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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