In September 2016, this blog noted that analysts were predicting higher levels of M&A activity in the marijuana industry. Early last month, we commented that the launch of several Canadian marijuana “streaming” companies – which provide financing to start-ups in exchange for a portion of the start-up’s future product at a fixed price (or a percentage of the start-up’s future profits from that product) – promised to provide an alternative avenue of raising capital for start-ups.
According to data published by Viridian Capital Advisors, a strategic and financial advisory firm dedicated to the cannabis industry, investment and M&A activity in the global industry increased in 2016 and has continued to increase in 2017.
Viridian’s 2016 data indicates that (all dollar amounts in USD):
- There were 315 capital raises in 2016 (247 by public companies, 68 by private companies) totaling $1,213.3 million ($940.5 million by public companies, $272.8 million by private companies).
- Equity raises outperformed debt raises in both the number of transactions and dollars raised: there were 186 equity raises totalling $1,006.1 million, compared with 129 debt raises totalling $207.1 million.
- The “Cultivation & Retail” sector raised the most capital in 2016 ($473 million), outpacing all other sectors, including the “Biotech/Pharma” sector (which raised $344.5 million).
- A total of 99 M&A deals were closed in 2016 (79 by public companies, 20 by private companies). M&A activity increased in nearly every sector in 2016 (compared with 2015).
- The “Cultivation & Retail” sector was the most active, with cultivators seeking economies of scale as the commoditization of cannabis exerted downward pressure on prices and margins.
- Public companies were the most aggressive acquirers, with stabilizing stock prices used as currency for acquisitions.
Viridian’s 2017 data shows that from January 1 through June 30, 2017 (all dollar amounts in USD):
- There have been 188 capital raises (119 by public companies, 69 by private companies) totalling $1,290.6 million ($978.6 million by public companies, $312.0 million by private companies).
- Equity raises continue to outperform debt raises in both the number of transactions and dollars raised: there have been 147 equity raises totalling $1,090.5 million, compared with 41 debt raises totalling $200.1 million.
- Part of the increase in capital raises is due to the new structure of capital being brought to the Canadian cultivation market through “streaming” arrangements from several new financing groups.
- The “Cultivation & Retail” sector has raised the most capital (with approximately $600 million raised), followed by the “Biotech/Pharma” sector (approximately $310 million raised).
- A total of 81 M&A deals (72 public, 9 private) have closed. From January 1 to June 30, 2016, only 38 deals had been completed.
- With 21 deals completed, the “Cultivation and Retail” sector has been the most active; and it has been much more active than it was from January 1 through June 30, 2016 (during which time only 6 deals had been completed). The second most active category has been the “Infused Products & Extracts” category (16 deals completed), followed by the “Investments/M&A” category (11 deals completed).
Norton Rose Fulbright Canada LLP is uniquely experienced in the industry, having recently advised MedReleaf Corp. (TSX:LEAF) on its initial public offering and secondary offering of 10.6 million common shares at CDN$9.50 per common share for gross proceeds of CDN$100.7 million. The team was led by Marvin Singer, Paul Fitzgerald, Jacob Cawker and Sean Williamson.
The author would like to thank Scott Thorner, Summer Student, for his assistance in preparing this legal update.
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