Canada Invading US Cannabis Sector: 2020 Mergers and AcquisitionsThe reckoning of 2020.
In 2020, the US cannabis sector experienced several notable and exciting shifts. First, when COVID-19 kicked off in the first quarter, cannabis was one of the few industries to rise from the ashes. Partially because of the stay-at-home orders and the plant’s designated status as an essential service, cannabis sales in 2020 have outpaced those from 2019 by nearly 40 percent, according to some assessments.
The second striking shift came with the 2020 US election, where cannabis made a stand. Among other big regulatory wins on election day, it also won an additional four states for adult recreational use: Arizona, Montana, New Jersey, and South Dakota.
The third change, which nobody expected: Canadian cannabis companies began quietly breaking into the US industry. Since the beginning of 2020, several companies (and not always the expected ones) have been politely making inroads into new legal markets south of the border.
Canadians Quietly Take Over US Cannabis
After sifting through the more high-profile cannabis news stories of 2020, the Canadian trend is loud and clear. More than one company bought into newly legal American markets, but these mergers and acquisitions largely avoided any national news coverage. If we look at the landscape by taking a step back, a pattern emerges.
Canadian companies, which already have a foothold in the cannabis space up north, are seeking to carve out a name for themselves south of the border — before federal regulation cracks the industry-wide open.
The new wave of Canadian mergers and acquisitions is thanks to both the COVID-19 surge in sales and expectations leading up to the federal election. The global pandemic meant that cannabis companies experienced an unexpected boost in sales, which meant rising stock prices. Flush with cash, these companies had now had the resources to buy into other markets and expand portfolios.
Then came the American election. As per a Financial Post report, many Canadian companies were also banking on legal reforms and new markets with the election. As November 3rd came and went, this was a bet that paid off. These two circumstances laid the groundwork for a big year of mergers and acquisitions in American cannabis.
2020 Canadian Acquisitions to Note
In May 2020, Aurora announced its purchase of US-based CBD brand Reliva. Once an all-star player on the cannabis stock exchange, Aurora has lost more than 90 percent of its value over the last year. The purchase of Reliva, which is already in as many as 20,000 retail locations, including circle K, is a part of a larger company reset. Should this purchase work out, it will build towards the Canadian company’s goal of profitability and access to the American market
In a surprising move, established Canadian brand Aphria announced its intention to buy US craft brewer Sweetwater in early November. As Market Watch noted in their coverage, unlike previous takeovers where an international beverage conglomerate has attempted to break into cannabis, the tables were turned in this scenario.
As the Market Watch story noted, “This deal appears different, however, with a Canadian pot company swallowing a smaller US beer company, instead of a large drinks conglomerate investing in marijuana.” While Sweetwater isn’t a cannabis-touching brand, they have a cult-like following for their stoner-friendly branding and flavor profiles.
In early November came the news that little-known Ayr Strategies, headquartered in Toronto, Ontario, had acquired Oasis dispensaries in Arizona. Now operating in five states, Ayr has ten brands under their umbrella covering cultivation, processing, and sales. As per CEO Jonathan Sandelman for Marijuana Business Daily, Ary is “targeting attractive assets in limited-license states with large populations, and where we can build a vertically integrated presence and continue adding to our deep talent pool.”
Finally, at the end of November 2020, TerrAscend Corporation announced its latest move into the US with a permit to dispense in New Jersey. TerrAscend Corporation includes cultivation, processing, and dispensing brands within its portfolio. Its cannabis business may have launched in Mississauga, Ontario, but the company is now actively growing and selling cannabis in California, Pennsylvania, New Jersey, and other states. TerrAscend now boasts several notable brands, including The Apothecarium, Ilera Healthcare, and Funky Farms.
Mergers and Acquisitions, A Natural Evolution of New Markets
As the cannabis industry evolves, it’s also beginning to stabilize. Mergers and acquisitions, like the Canadian takeovers highlighted above, are a common natural progression. In the early stages, everyone got into the sector seeking fame and fortune, but not everyone has the resources to pivot or adjust as the markets settle.
The truth is that legal cannabis markets in both the US and Canada have developed in ways nobody expected. Big players in Canada have failed to live up to the excitement of their initial stock prices, and it’s been challenging for American companies to build a national name for themselves in a patchwork quilt of state-based markets. What the 2020 shifts are telling us is that the reckoning has begun. As the cannabis sector matures, not every company will make it.