FL Benzinga Cannabis Conference Experts Discuss M&A Future. As a panel, “Who’s Winning In M&A? In a session titled “East Coast vs. West Coast (The Biggie-2Pac Dilemma)” held at the Benzinga Cannabis Capital Conference in Florida, professionals in the field discussed and predicted future trends in marijuana mergers and acquisitions.
Viridian Capital’s CEO and founder, Scott Grieper, provided concrete evidence. Based on data collected over nine years by the Viridian Cannabis Deals Tracker, the cannabis industry has failed to regain the volume and value of merger and acquisition activity witnessed in 2021. But things are heating up in Q1 2024, with average deal size hitting $20 million, a new annual high. The most forceful purchasers are MSOs or multi-state operators. Stock prices have been doing better in a market that is surging on the expectation of FL Benzinga Cannabis being rescheduled, which has led to an increase in merger and acquisition activity.
Major regulatory announcements have a big impact on value, according to the Viridian M&A tracker. Greiper did say that the market isn’t completely without hope, though. That consolidation is likely to help get the industry up to size and scale so that it can mimic the alcoholic beverage and tobacco industries.
New Markets Vs. Old Markets
Paxhia, the co-founder of Poseidon Asset Management, made the observation, “We’ve lived in such a capital-deprived time that it is very hard to imagine leaning into very cash-heavy transactions at this time—especially while we wait for what’s happening at a federal level.” That is right.
Paxhia suggested rephrasing the debate from East vs. West to New Markets vs. Old Markets when discussing the subject.
To be a part of any market before it opens to adults, mergers and acquisitions (M&A) are common; therefore, new markets often ask for more money and M&A. “If caps are changed, these new markets, like New Jersey and Massachusetts, will rely more on capital raising,” Paxhia said. Companies in California are experiencing an uptick in distressed asset sales as they try to weather financial storms; the lack of bankruptcy protections for the cannabis industry is adding insult to injury.
When considering what kind of returns to anticipate from investments in the FL Benzinga Cannabis industry, this distinction remains. In mature, consolidated markets, multi-X exits may be less possible; instead, attention should be directed toward fundamentals, while markets that are just starting to open up provide tremendous opportunity.
Market saturation and licensing caps make it hard to fathom running assets fetching multi-X exit multiples. Companies with good basic performance are thus more appealing to us as a source of investment. However, Paxhia noted that if he had property in Ohio, for instance. He would likely consider a number of large sales when the adult-use market opened.
Pennies On The Dollar Opportunities
“Even though there are hard deals, there are also gems popping out on the West Coast, especially in California,” says Eric Espinoza of Green Life Business. Who does a lot of business in California and believes that strained conditions present opportunities.
Gems are the names Espinoza gives to troubled businesses that have reached out to investors seeking funding. He observed that fascinating investor spaces could be located on both the West Coast in California and Nevada and the East Coast in New York, Florida, and Ohio. These scenarios might lead to the acquisition of valuable enterprises for pennies on the dollar.
Cash Is The Most Valuable Asset
Dustin Miller, another Californian, claims that money is the most important asset in the cannabis industry. “Any cash that the company would use for acquisition is going to operations… due to the deprivation of capital until there is a larger influx,” Talarya Brands’ CEO remarked. There is no resource more valuable than cash in this market.
In reference to the dispute between markets, he argues that traditional markets provide a more secure situation. Uncertainty and exorbitant prices are common in newly established markets. Currently, operators enjoy strong margins, but as a result of consolidation, these margins will eventually become scarce. Consequently, investors should exercise caution when venturing headfirst into an unproven sector. While established markets may provide opportunities for financially troubled businesses. In such cases, solid foundations and experience can make up the difference.
“We have seen this cycle before,” he added critically. Investors have witnessed the cycle in action as emerging sectors have consolidated throughout history.
Still Early For Cannabis Investors
Robert Nederhood, an M&A expert and partner at Foley Lardner, stated, “In the world of Biggie versus Tupac. I’m here representing EMINEM.”
Limited licensing and high-profit margins might mask incompetent management. As soon as prices begin to fall, those problems become apparent, and distressed assets are brought to market, according to Nederhood. He went on to say that consumers should check the legitimacy of the business they’re doing business with. “Look, we’ll look back and say, ‘I really believe that was a fantastic chance to purchase at a discount.'”
