5 Key Factors To Consider Before Making A Cannabis Acquisition

With talk of a looming recession, analysts predict that given a downturn there will be a short list of growth industries capable of delivering a healthy return on investment. Cannabis is near the top of it: Spending on legal cannabis in the U.S. is expected to increase from $12.9 billion in 2019 to $20.4 billion in 2022, according to New Frontier Data.

As investors aggressively pursue opportunities in the industry, the pace of consolidation continues to accelerate. CohnReznick and New Frontier Data have both seen an increase in buy-side due diligence inquiries which correlate with an increase in publicly reported acquisitions.

Among the investors pursuing deals are heavyweight players from each Big Pharma, Big Tobacco and Big Liquor, as well as institutional investment companies like BlackRock. As legal issues get resolved and public support increases, the industry will become increasingly attractive to institutional investors.  A looming national recession could push more investors toward cannabis, chasing yield in the strongest growth market of the last few years.

Further crowding the field of potential buyers are existing cannabis businesses — including large cannabis companies traded on the Canadian exchanges — which see acquisition as a fast way to build brands, expand market footprints, and raise their public market values. Also in the game are regional players which are buying up smaller companies within their spheres of influence to increase their respective sizes and, ultimately, position themselves for their own lucrative exits down the road.

As M&A in the cannabis field heats up, there are five factors which all buyers should keep in mind when looking for an acquisition target:

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