The marijuana industry has been high on analysts’ lists ever since Justin Trudeau and the Liberal Party were elected in late 2015. Some analysts predict the legalized pot industry to be a $5 billion market in Canada alone. Thus, it is clear that a new and lucrative market is burgeoning.

Analysts are predicting a high level of M&A activity in this space. The industry is currently comprised of many small players, which makes it attractive for bigger and more established corporations. Todd Hagopian, an analyst operating a market fund focused on the biotech industry, is predicting that big pharmaceutical corporations will likely become acquirers in the near future. His thinking is that they are cash heavy and are looking for new ways to continue growing. Moreover, M&A activity has already begun picking up momentum. Data from Viridian Capital Advisors (f/k/a Viridian Capital & Research), an index focused on the Cannabis industry, shows that 33 acquisitions were conducted in 2014. The president of the index, Scott Greiper, expects this acquisition activity to continue to grow into the foreseeable future.

It is true that the industry is not all green grass. There are a few weeds that need to be pulled out before it can flourish into its full potential; one such obstacle is full legalization, or at least an established and stable regulatory framework. The recently announced new set of regulations for accessing medicinal marijuana in Canada, the Access to Cannabis for Medical Purposes Regulations (ACMPR), may be seen as another stepping stone in that direction, as the ACMPR will replace the existing Marijuana for Medical Purposes Regulations (MMPR).  These new regulations, while an interim measure, are intended to expand patients’ limited access to marijuana under the old regulations and may also be seen as an endorsement of the system of “licensed producers” that has developed under the MMPR, as licensed producers will continue to be exclusive large-scale producers of cannabis under the ACMPR.  The ACMPR may therefore provide some comfort to industry players that regulated medicinal marijuana is here to stay. See here for more.

The author would like to thank Fahad Diwan, Summer Student, for his assistance in researching and preparing this legal update.

Stay informed on M&A developments and subscribe to our blog today.