OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
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Chart of the Week
Chart of the Week
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from that week’s Deal Tracker that we believe are impactful for investors, companies and acquirers.
Week ended 02/03/2023
From Growth to Distress: The Changing Strategy of U.S. Cannabis M&A
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- Total U.S. targeted cannabis M&A is down 73.6% from $10.2B for the trailing twelve months ended 1/27/22 to $2.7B for the LTM ended 1/27/23. The first four weeks of 2023 are down even more sharply, off nearly 98% from the same period in 2022.
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- Two opposite trends are pulling on U.S. M&A volume:
- Retrenchment and concentration on cash flow rather than growth. As shown by AYR’s (AYR.A: CSE) cancellation of its $55M dispensary purchase in Chicago this week and Curaleaf’s (CURA: CSE) exit from three Western states. The Cresco (CL: CSE)/Columbia Care (CCHW: CSE) megadeal hangs in the balance, with the arb spread saying that the deal will likely be canceled or recut.
- Distressed asset sales: Record tightness in the cannabis capital markets. ongoing pricing compression and inflationary margin pressures are pushing small to midsized companies into liquidity crises, driving increased distressed M&A opportunities for the right buyers.
- Two opposite trends are pulling on U.S. M&A volume:
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- The rugged operating and financing environment will be healthy for the industry, clearing away those unable to respond to the challenges and strengthening those that took the opportunity to improve their cash-generation capability.
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- It will present once-in-a-lifetime opportunities for investors/companies/acquirers who can discern deep value and assemble distressed assets at deeply discounted prices.
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- There has also been a significant change in the state-by-state composition of transaction volume.
- No state accounted for > $500M of volume in this year’s LTM period. In contrast, 4 states had higher totals last year: CA ($3.1B), CO ($991M), PA ($919M), and FL ($780M).
- California (whose $3.1B total is cut off from the light green part of the graph) had more M&A volume in last year’s LTM than all 50 states combined this year.
- Washington was the top state in total transaction volume this year due to the $444M Merida Merger Corp. SPAC deal for Leafly (LFLY: Nasdaq) in February 2022.
- 72% of New York’s total was composed of the April 2022 $247M acquisition of Etain LLC by RIV Capital.
- Nevada had eight transactions in the LTM, led by the $181M acquisition of Tryke Corp. by Curaleaf (CURA: CSE).
- There has also been a significant change in the state-by-state composition of transaction volume.
