Since Canada’s legalization of cannabis, the cannabis sector has been a steady source of M&A activity. However, as the novelty of legalization wears off and with the continued stabilization of product demand, market participants have begun evaluating new opportunities and implementing creative M&A strategies to continue their growth in the Canadian market.
One recent example of this shift in M&A focus was ShinyBud’s announcement that it has acquired its first pharmacy in Cornwall, Ontario as part of a broader growth plan focused on health and wellness. Framing the move as a way to “differentiate [the] company from other cannabis retailers”, ShinyBud revealed that it will continue to focus on pharmacy acquisitions as a way to drive growth and is evaluating six other pharmacies as acquisition targets.
This novel approach to pairing pharmacies with cannabis retail may fit well together from a consumer perspective. Not only is there interest in cannabis health products, but cosmetic products that incorporate cannabis or hemp have continued to gain increased popularity. Further, for most individuals, pharmacies are a trusted and reliable source for a variety of health and wellness products. By placing cannabis products in a familiar retail setting alongside other more traditional health and wellness products, may help to further normalize the use of cannabis and increase penetration into demographic cohorts that have not historically used cannabis products.
Although the potential for increased demand and new customers will likely appeal to many in the market segment, cannabis retailers will need to consider the regulatory and corporate hurdles they face if they pursue this strategy. There are complex corporate ownership requirements for both pharmacies and retail cannabis stores that vary across the provinces. A lack of thoughtful consideration with respect to corporate structure, shareholder rights, and board composition can lead to regulatory delays, tax inefficiencies, and lower profit margins. Other regulatory restraints, including the constraints on advertising for drugs, pharmacies, and cannabis, could further affect harmonious pharmacy and cannabis operations.
Accordingly, as this strategy has the potential to drive continued growth and in light of the competiveness of Canada’s cannabis market, it will be worth watching whether other market participants follow ShinyBud’s lead by making health and wellness a focus of their acquisition strategy. However, given the implications, a successful transition into pharmacies and other wellness spaces will require careful planning and execution. Norton Rose Fulbright is well-positioned to help navigate the regulatory and corporate challenges involved with this acquisition strategy and to support the implementation of other creative M&A strategies locally, nationally and globally.
The author would like to thank John Greiss and John Pritchard for their significant contribution to this article.