Looking Back and Forward

Unknowns characterize the cannabis M&A landscape for 2019 and beyond

Looking back from mid-2018, David Planques, National Deals Leader for PwC Canada, summarized the cannabis M&A landscape for the first half of that year and rightly predicted the deals landscape for the second half (see https://pwc.to/2FRTKXQ).

He wrote then, “The pending legalization of recreational marijuana for adults has significantly impacted the sector in the first half of the year. A total of 48 deals took place in the first six months of 2018 for a total disclosed value of CA$5.2 billion. With a large number of players and ample capital, companies are investing to create economies of scale, expanding their patient base, securing consumer-centric products and brands, entering new markets and acquiring protected distribution channels.

Following the legalization of cannabis on October 17, Planques then predicted, “the deals landscape will focus on three main activities:

“Continued consolidation of the Licensed producers (LP) landscape within Canada, as growers continue to mature their adult-use businesses.

“Increased focus on international M&A, as LPs look to fuel further growth by tapping emerging foreign medical markets.”

And, “a reduction in the number of players as expected oversupply takes its toll and forces undercapitalized players into bankruptcy (which may be an opportunity for well-capitalized companies to acquire prime assets).” For 2019 and beyond, it is this latter trend that worries observers of the cannabis deals space. There are so many unknowns ahead: Will owners from other sectors successfully cross over? Will Canadian companies make it in Europe? Will the American federal government legalize recreational marijuana? Let’s discuss a year from now.