ETFs In Focus As Consolidation Drives Marijuana Industry

The cannabis industry is thriving with mergers and acquisitions. Companies that are mostly small and privately held are being consolidated in order to expand their geographic and product footprint.

Since regulatory hurdles are encumbering the growth of the industry, it has been gaining attention from investors, analysts, and medical and consumer-driven industries. Thus, per industry experts, American multistate operators continue to stretch their U.S. market footprint via inorganic expansion, while the Canadian companies are looking to expand their territory internationally by purchasing foreign assets inexpensively.

With the possible legalization of cannabis on the federal level some point down the line in the United States and the companies’ increased access to the capital markets, the domestic market is the new name of the game since Canada’s growth story looks a bit priced-in.“Land Grab” has been one of the key drivers in the U.S. cannabis deal market to acquire land fast and have licenses to cultivate cannabis.

According to data compiled by Mordor Intelligence, the global cannabis market was valued at $7.7 billion in 2016, which is going to grow to about $65 billion at a CAGR of 37%.

Inside the Recent Deals

Last year, the industry saw big deals like Constellation Brands’ (NYSE:STZ) increase of its original 9.9% stake in producer Canopy Growth Corp. (NYSE:CGC) to 38% for CAD $5 billion. Aurora Cannabis’ (TSX:ACB) acquisitions of CanniMed Therapeutics (for CAD $1.23 billion) in May and MedReleaf Corp. (CAD $3.2 billion) in July, respectively, were also among the largest deals announced in 2018.

In late 2018, Aurora Cannabis announced its expansion in Mexico with the acquisition of Farmacias Magistrales S.A. This expansion will allow Aurora to have access to the newly legal Mexican medical marijuana market. Aurora Cannabis also announced a partnership with Alfred Pedersen & Søn and the acquisition of ICC Labs for CAD $290 million.

Aphria Inc. (TSX:APHA) announced the acquisition of Nuuvera Inc. for about $425 million, and American and Caribbean assets of Scythian Biosciences for about $300 million. In November 2018, California-based cannabis retailer and producer MedMen had agreed to buy Chicago-based PharmaCann, a medical marijuana company, for $682 million (read: Why Marijuana ETFs & Stocks Have More Room to Run).

In December, Altria Group (NYSE:MO) announced that it will buy a 45% stake in Cronos Group (NASDAQ:CRON) for $1.8 billion and Canopy Growth took Storz & Bickel (a German vaporizer maker) under its roof for about €145 million.

Among other important deals were Canopy Growth’s acquisition of Ebbu Inc. for CAD $425 million in November. Aleafia Health Inc.’s acquisition of Canabo Medical Inc. for $30 million and gain of a 59% stake in Emblem Corp. for $173 million. Isodiol International Inc. acquired a 51% stake in Farmtiva in June 2018.

This year has been rock-solid. In February 2019, Tilray announced the acquisition of the world’s largest hemp food maker Manitoba Harvest for about $318 million in February. In April, Cresco Labs, one of the most valuable U.S. pot companies, announced the buying of CannaRoyalty (dba Origin House). Harvest Health & Recreation Inc. announced the acquisition of closely held Chicago-based Verano Verano Holdings LLC for about $850 million (read: US Marijuana Market Warms Up to Merger Deals: ETFs in Focus).

In June, Canopy Growth Corp. and Acreage Holdings announced the approval of the $3.4 billion deal, under which Canopy Growth seeks to buy the right to acquire the U.S. market leader at an agreed-upon price when (or if) marijuana becomes federally legal in the United States. Also, Canopy Growth acquired KeyLeaf Life Sciences in June. Canopy gathered more than five dozen global patents in recent months through acquisition. Most recently, there was Supreme Cannabis Co.'s merger with Blissco (read: Likely Canopy-Acreage Deal Looks Good Enough to Boost ETF MJ).

ETFs in Focus

Thanks to a pickup in activities, many marijuana ETFs were launched in recent times. Right now, there are as many as six cannabis ETFs in the space, namely ETFMG Alternative Harvest ETF (CSE:MJ) , AdvisorShares Pure Cannabis ETF (LON:YOLO) ,Cannabis ETF THCX, AdvisorShares Vice ETF (WA:ACT) ,Amplify Seymour Cannabis ETF CNBS and Cambria Cannabis ETF TOKE. All these funds could be a good way to capitalize on the cannabis boom.

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