Nationwide Marijuana M&As
Cannabis economic growth is seen through an increase of mergers and acquisitions. As medical and recreational cannabis legislation moves forward in states across the US businesses in the marketplace show strong economic activity and industry evolution. We’re seeing more business and real estate trade activity, new entry, exit strategies and joint ventures in and across state lines. Chains are growing and opening new locations, consumer goods are sold internationally, consulting services are essential, industry partnerships are fusing and expanding with unique activity.
State Business & Geography
There is still a large risk in trade activities between cannabis companies as legislation between states differs so much. The risk in acquisition in states with strict or no medical legislation makes it harder to turn a profit. However, we still see companies acting like in January when California’s MedMen acquired Bloomfield Industries in New York State.
On the other hand, an acquisition in a medical state that is about to go recreational could become very lucrative as those businesses with medical licenses are the first to capitalize on recreational passing. No matter what state legislation may be, the multi-billion dollar price tag on cannabis business is difficult to ignore.
Variable Motivation
Motivation for economic activity and market valuation is variable and in-flux and many say based on geography, change in legislation and good or bad business. As we saw last year when Massachusetts and California were about to go rec there was a lot of activity around businesses in those markets. The motivation made sense in light of new cannabis laws. We’ve seen multi-million dollar deals in medical and recreational cannabis business over the past year in California, Washington, Nevada, Colorado (and more). So yes, in many ways, money is the motivator here.
But, there are many hurdles because of demanding and expensive regulation that motivate in the opposite way. Federal regulation and its implication on business tax situations via 280E makes it hard to valuate businesses or document profit which is challenging when trying to exit, even if business is good.
Sometimes business isn’t good which motivates an owner to sell or merge. This can be a good opportunity on the buying side if you have the resources to turn it around. New York attorney Lauren Rudick who advises clients on marijuana says, “it’s hard to tell, since we don’t have a reliable method of valuation at this point.”
Other times the politics of the cannabis business is just too demanding, always changing and the owner can’t keep up. Exit like this can place holes at the heart of a company making it hard to tell whether a deal may be volatile or not.
Sustainability
Whether you are buying, selling or merging the cannabis economy is proving to be a healthy one with lots of dollar signs. On the other hand, we see lots of turnover and our fair share of failures. There is so much potential in this new market it is exciting for highly experienced business vets and cannabis experts alike. We see people turning impressive, fast profits as well as large, long-term investment success. The bottom line in the cannabis market and any market really is for companies to find long-term business models that work for them.
Utilizing business services and understanding legislation in your big picture can keep business sustainable in the the long-term. EvolutionZ’ team of professionals may be the right fit for you as you navigate the waves of the cannabis economy. Hold on tight and utilize the resources available to accomplish your unique success in this industry.
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