Over the past four months I’ve had the opportunity to travel the world, attend conferences, visit operations, and I’ve spent one on one time with multiple thought leaders in and around the cannabis industry on multiple fronts. Since December I’ve attended or presented at:
- YPO Summit 420 – Cannabis & Psychedelics / Plant Medicine – Miami, FL
- Arcadian Capital annual meeting, Los Angeles, CA
- South by Southwest SXSW – Austin, TX
- YPO Health & Wellness Converge Miami – Miami, FL
- Roth Capital Conference – Laguna Beach, CA
- Cantor Fitzgerald 2nd Annual Cannabis Summit – Virtual
- Cannabis M&A Event – hosted by STS Capital, Greenspoon Marder & CannaCPAMasters – Los Angeles, CA
- Beer & Spirits Industry Summit, Del Coronado, San Diego, CA
- Visits to cannabis and beverage operations in Asia, Europe, Canada, Multiple US states
A summary of my observations is as follows:
Despite certain challenges state by state, and the lack of Federal leadership in the US, there remains a vibrant industry continuing to attract entrepreneurs and capital. While there has been a huge separation in access to and cost of capital between the larger Multi-State-Operators (MSOs) and the smaller businesses, the industry continues to progress. M&A is heating up at all levels. We see increased activity into Q3 and Q4 with larger players looking to fill out their geographic coverage (state by state) and smaller players looking to gain scale by combining. As we lurch toward potential Federal reform in at least the banking front, we expect deal making to heat up even more.
I remain more convinced than ever that brands matter and will be the key drivers of value into the future. That said, solid operations, making positive cash flow and not getting ahead of one’s skis are the most important characteristics in today’s market. Long term, brands will win, but to get there, companies must have the staying power to build brands. That is being done across the industry in individual businesses and markets but is still the exception.
Europe is interesting as markets start to open. Germany is the big bell weather that appears to be marching towards legalization. Many players throughout the EU are positioning for entry there. Uncertainty with the war in Ukraine is perhaps slowing things a bit, but there is momentum in these markets building.
Asia has great promise with Thailand looking to lead the way recently in order to open up their tourism to the region.
A key trend we are seeing across multiple sectors is convergence. This is particularly evident in the beverage world from which I come. One only needs to look at deals announced this year to see it clearly. Examples include Coca-Cola entering alcohol with Fresca (partnered with Constellation) and Hard Topa Tia (partnered with Molson Coors), Pepsi with Hard Mountain Dew (Boston Beer), Monster Energy buying craft brewer CanArchy ($300m), Tilray buying Sweet Water brewing and Breckenridge Distillery. We expect to see more cross category investment and when safe banking gets enacted, the floodgates will open up across the sector in cannabis and hemp.
Regardless of the banking situation, we see MSOs and other new players looking to add successful growth businesses to their growing footprint in the 2nd half of 2022. Smaller player such as Vecanna (CSE: VENI) (OTCQB: TPPRF), where I set on the board are doing cash positive acquisitions and new market expansion as well (SEE TODAYS MERGER ANNOUNCEMENT for NV and NJ). I see more of these types of deals going forward.
Smoke is a partner and Managing Director at STS Capital Partners, Chairman of Taliera, Chairman of Vertical Wellness, a board member of Vecanna (Top Strike Holdings) and a serial entrepreneur. He is focused on helping solve homelessness through innovative transitional housing NFP Dignity Moves.
