Investment and M&A Activity in Cannabis and Hemp

by Scott L. Greiper

The first half of 2020 saw a wild ride in investment and M&A activity within the cannabis and hemp industries. Gyrating stock prices of public companies and the COVID-10 pandemic caused a sharp decline in investment activity in the first quarter of 2020. However, the second quarter of 2020 saw a recovery in cannabis stock prices and investment activity, in no small part due to cannabis dispensaries being deemed as an “essential” service. The following are the key highlights and rends f this wild first half 2020 based on data from the Viridian Cannabis Deal Tracker.


  • After a brutal 2019 during which global cannabis stocks lost approximately 70% of their value, the beginning of 2020 was relatively benign, but as the impact of COVID-19 became clear, global cannabis stocks traded off another 62 % finally bottoming out around March 18.
  • The stock decline further exacerbated the cannabis capital crunch, bringing capital raises for earlier stage companies and most M&A activity to a virtual halt.
  • Stock prices and market conditions have improved significantly since the bottom, but cannabis stock prices are still about 25% down since the beginning of the year. The partial recovery has brought back a bit of vigor to the capital raise and M&A activity in the industry.
  • Cannabis was classified as an “essential” business by most states, allowing continued albein altered operations. Cannabis sales volume has held up remarkably well and recent data suggests an acceleration of the growth trajectory despite general economic weakness.
  • Some of the largest cannabis M&A deals ever closed during 1H’2020 including Curaleaf/Select and Cresco/Origin House and another major transaction, Curaleaf/Grassroots closed in July 2020.
  • The unbridled and undisciplined pace of M&A activity from 2016 to 2019 is over. Tighter capital and lower public company valuations are mandating M&A strategies that are much more accretive financially and strategically.
  • Cannabis SPAC IPO’s raised more than $2.6 billion in the last year, and more than $700 million in 1H’2020, as institutional investors recognized the opportunity to acquire distressed/discounted assers in the industry.
  • The U.S. cannabis marketplace has become the dominant focus of both investors and acquirers.

Capital Raise Activity

  • Capital raise transactions decline. Viridian Capital tracked 166 capital raises in the first half of 2020 that raised a total of $2.6 billion, a decline of 67.5% versus the first half of 2019, and a decline of 32.2% versus the second half of 2019.
  • Sales-leasebacks and SPACs tilt capital allocation ratios. Of the 12 industry sectors we actively track, Cultivation & Retail continues to lead with 55% of all invested capital, although down from 66& in the first half of 2019. The two other leading capital raising sectors were Real Estate (18% of invested capital, up from 4% in the previous year) and Investments/M&A (13% of invested capital, up from 7% in the previous year). These two sectors highlight the growing role of sales-leaseback financing and SPACs.
  • Public capital raises have become more dominant. Public companies represented 89.2% of the money raised and 80.7% of the number of transactions, significantly higher than the 70.3% of capital raised and 67.8% of the number of transactions registered for the first half of 2019. As in any distressed/uncertain environment, investors chase liquidity that public companies can provide
  • Debit becomes a larger part of the landscape in the U.S. Late 2019 and 2020 to date have seen several large straight coupon debt issuances by U.S. MSOs and we expect this trend to continue as more of them become free cash flow positive.

Mergers & Acquisitions Activity

  • M&A activity continued to fall from an already low level in the second half of 2019. Viridian Capital tracked 39 M&A transactions in the first half of 2020, down 81% from the 205 recorded in the first half of 2019. The drop in M&A activity directly relates to the dramatic decline in cannabis stock prices as most industry transactions are predominantly stock based.
  • Sector Rotation. Cultivation & Retail, consistently the largest M&A sector, recorded 25 M&A transactions in the first hald od 2020, down 79% from the 117 recorded in the first half of 2019 and 61% from the 64 recorded transactions in the second half of 2019. Significant declines in activity also occurred in Hemp, and Infused Products and Extracts. The Biotech/Pharma sector saw the largest increase in M&A activity.
  • Going-public deals recoil from their peak in the second half of 2019. Viridian Capital recorded 5 going-public transactions in the first half of 2020, raising a total of $504 million. This number of transactions was 62% lower than the 13 recorded in the second half of 2019 and the capital raised was 63% lower than the $1.35 billion raised in the second half of 2019. The change was largely due to the virtual cessation of RTO transactions (1 versus 6) and a lower amount of SPAC capital raised. The second quarter of 2019 figure was heavily influenced by two large SPAC IPOs (Bespoke and Subversive) that together raised $925 million.
  • Corporate M&A strategy evolves. The unbridled and undisciplined page of M&A activity from 2016 to 2019 is over. Tighter capital and lower public company valuations are mandating M&A strategies that are much more accretive financially and strategically.

What Lies Ahead?

We Foresee Renewed Growth In Capital Raise Activity Based on Current Market Dynamics

  • Valuation levels have stabilized after a significant bounce off the bottoms.
  • Reduced overall valuation levels will drive increased investor interest.
  • Companies will continue to require growth capital as the industry shows increasing growth rates.
  • Consolidation/roll-up initiatives underway across the industry will require both acquisition and operating capital.
  • COVID-19 induced budgetary shortfalls will give more states an incentive to pass Medical and Adult-Use legislation in the November 2020 elections.
  • Potential for landmark changes in federal regulation of cannabis if Democrats will control of the White House and Senate in addition to retaining the House.

 We Foresee a Pick-Up in M&A Activity Based on Current Market Dynamics

  • SPACs should begin to announce/close deals.
  • Reduced valuation levels for private companies will drive buyer demand.
  • Companies that can’t raise growth capital will pursue M&A exits
  • Distressed companies will be sold as ongoing operations or in pieces.
  • The U.S. cannabis marketplace will remain the dominant focus of both investors and acquirers.
This article was originally published as part of Lido Consulting’s Summer 2020 newsletter.

Scott L. Greiper

President & Founder | Viridian Capital Advisors | 646-330-0704



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