In a mature cannabis landscape, mergers and acquisitions are a key instrument for building out an expansion strategy.
By mid-2021, consolidation in the marijuana industry reached an all-time high with little signs of slowing down, as more states come online and companies look for ways to enter new markets and build larger sources of revenue.
In a live panel at the Benzinga Cannabis Capital Conference in New York City, Tom Zuber, managing partner of Zuber Lawler, spoke with key leaders in the cannabis industry about the role of M&A in the sector today.
Creating A New Industry Landscape With M&A
Launched just three years ago, Jushi Holdings Inc. JUSH JUSHF had to be built on the foundation of M&A, says Olivier Blechner, the company's executive vice president of business development.
“We’ve executed more than a double-digit number of transactions that have gotten us into an extremely interesting state to be in,” says Blechner.
His company has a strong presence in Pennsylvania, Virginia and Illinois and recently closed acquisitions in Massachusetts while also becoming vertically integrated in Nevada with the purchase of The Apothecarium.
“The Parent Company itself was brought together around an idea of consolidation,” says Steve Allan, head of corporate development at The Parent Company GRAMF GRAM.
His firm was launched as a SPAC (a special purpose acquisition company) that raised over $300 million to acquire three manufacturing facilities in California.
After that jump start, the company’s focus has been to complement the initial assets with various acquisitions from the retail and cultivation side of the business. In the last four months, The Parent Company has quadrupled its retail footprint in California.
“M&A is core to everything we do,” says George Allen, chairman at Lowell Farms Inc. LOWLLOWLF, who comes from a strong M&A background as a former president of Acreage Holdings ACRHF.
In his words, Acreage was built up from an “early-version, rolled-up strategy in M&A.”
When launching Lowell as a new company in California, Allen came back to that known M&A strategy. His company initially purchased the original Lowell Smokes brand as well as a large-scale processing facility in Central California.
“I’ve been really happy so far with the use of M&A. This business is really about finding what you’re good at, starting with what you’ve got and expanding from the core.”
Allen describes his focus as making sure to get the business model right, “and if there are choke points in our business, focus on using M&A to fix that.”
Organic Growth Vs. M&A Growth
Lowell Farms’ Allen says that an M&A transaction can distract a company for six to nine months, so the process does come with a risk.
“I love using deals as a vehicle for expansion but I view us as having only a limited number of deals that we can do at any given period because the distraction and the integration work can really pull your company down and distract you from your core mission,” says Allen.
However, creating a “hit brand” can be as hard as writing a hit song, he adds. In that sense, M&A can be a valuable tool for guaranteeing successful growth.
For The Parent Company’s Allan, organic growth can be accompanied by M&A, without having to choose for one strategy over the other.
“Ultimately, M&A can get you into a spot, a location, a customer base, a product form factor immediately,” while growing organically can take between 18 to 24 months for develop a company or brand in a new market, says Allan.
In The Parent Company’s case, the use of M&A comes best when needing to scale up quickly, while organic growth can be used for increasing density in a customer base, without diluting shareholder value.
Choosing The Right M&A Partner
Jushi’s Blechner says that organic growth can complement M&A growth, by building out assets after they’re initially bought. When looking at new acquisition opportunities, the exec. says it’s important to keep in line with the company’s current strategy at play.
“For us, we’re either going to expand and make our market presence stronger in the states where we’re currently in, or it has to get us into a market where we believe we can get a great market position,” says Blechner.
The Parent Company’s Allan adds that there’s an unlimited amount of assets to be purchased and the key is how well a company can filter them out.
“For us it’s fairly simple: does it fit the strategic parameters, is it accretive, is it something that we can operationally enhance and is it something that has long-term value-driving.”
Photo: Zuber, Blechner, Allan and Allen at the Benzinga Cannabis Conference in New York in October 2021.
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