CannabisNewsWire
Editorial Coverage: The cannabis sector continues its steady
shift toward big business and big money, with much of growth based
on acquisitions, agreements and consistent research.
TransCanna Holdings Inc. (CSE: TCAN) (FRA: TH8)
(TCAN
Profile) is focused on creating a large operation with
various licenses and recognized brands, with several key
acquisitions, being part of that strategy. Medmen
Enterprises Inc. (CSE: MMEN) (OTCQX: MMNFF) is in the
process of acquiring PharmaCann, which recently received an
extension to complete the development of its cultivation facility
in Ohio. Cronos Group Inc. (TSX: CRON) (NASDAQ:
CRON) just entered into a multiyear supply agreement that
will help the company provide high-quality products to consumers in
anticipation of the derivative market launching in Canada this
fall. Tilray Inc. (NASDAQ: TLRY) recently
completed its acquisition of Manitoba Harvest, the largest hemp
food company. GW Pharmaceuticals Plc (NASDAQ:
GWPH) continues its march forward as a leader in
cannabinoid prescription medicines sector with its recent
announcement of positive, top-line results of a Phase 3 clinical
trial of Epidiolex® in the treatment of seizures associated with a
rare and severe form of childhood-onset epilepsy.
- Cannabis companies are engaging in multimillion-dollar
acquisitions in growing numbers.
- This strategy supports a consolidation of the industry as it
moves from scattered creativity to efficient large businesses.
- The trend is built in part on intangible assets, including
brands, licenses and research.
To view an infographic of this editorial, click here.
A Very Different Business
The image of the cannabis industry varies significantly
depending upon an individual’s point of view. To supporters, the
market is a transformative sector aimed at bringing the world
together. Detractors call the industry one more vice threatening
public morals. For many standing in the middle ground, the sector
is a space where hippies and stoners can thrive but not necessarily
one that encourages the buzz and dynamism of mainstream
business.
In reality, the cannabis sector fits none of these images. The
industry is emerging from its early nascent steps into legality to
become a significant business sector much like any other, with all
the elements of modern capitalism. This growth appears to be
reflected in the sector’s recent burst of mergers and
acquisitions.
Big-Money Deals
Certainly one of the most eye-catching aspect of mergers and
acquisitions in the cannabis sector is the significant amount money
involved. Take just two recent examples from a single company:
TransCanna
Holdings Inc. (CSE: TCAN) (FRA: TH8).
In the past few months, the Vancouver-based cannabis company has
made announcements on two major deals. First came the acquisition
of a 196,000-square-foot vertically integrated cannabis
facility for a total purchase price of $15 million. Then came a
letter of intent relating to Californian company Lyfted Farms
outlining TransCanna’s plans to acquire Lyfted’s
business and assets for $5.5 million.
By some standards, these might not seem like significant deals.
But when a company is investing $20 million on expansion in the
space of a couple of months, stability seems evident. That
TransCanna can make these deals is a show not only of the strength
of the company but also the strength of the industry.
The financial growth of the legal cannabis industry has been a
positive move for everyone from company leaders to their
lowest-paid employees. The legalized trade is pulling money out of
the black-market economy and allowing those at the top to earn big
bucks while also providing employees with a decent wage. Far from
weakening the power of legal providers, paying employees properly
is leaving them with enough money to go around buying up
competitors, as TransCanna is doing.
Success has also brought funds from outside. From private
individuals to big alcohol and tobacco companies, investors are
pouring money into pot, allowing businesses to expand while keeping
their employees happy. There are living wages at the bottom and big
money at the top.
Tidying Up the Market
The progression of the legal cannabis industry started with a
scattered approach. TransCanna is one of many companies that
started in the market with a relatively small presence. Some began
as entrepreneurs seeing a new industry within which to operate.
Others were experienced cannabis cultivators moving from the
illegal to the legal market. Still others were pharmaceutical
companies dipping their toes into a new medicine and, from there,
into the recreational industry.
As a result, the cannabis industry was initially made up of
diverse and disconnected businesses. Now, however, the sector is
moving toward a space of consolidation.
This doesn’t mean that the variety created in that early surge
is being lost. When larger companies buy up smaller ones, the aim
is often to continue supporting and growing the individual brands
and styles the smaller companies have created. For example,
TransCanna has announced the acquisition of GoodFellas, allowing
TransCanna to take control of
the Daily Cannabis Goods brand. TransCanna CEO Jim Pakulis has
talked not in terms of absorbing the Daily brand into TransCanna’s
existing identity but in terms of maintaining Daily and expanding
its sales.
The consolidation of multiple brands and businesses into a
smaller number reflects a dialectic process that’s common in new
business areas. First comes a burst of creativity. With few
precedents and no big players dominating the market, entrepreneurs
and creatives have free rein. Some of their experiments fail, but
the ones that succeed get consumers interested and fill the market
with ideas.
While this creates plenty of exciting idea and products, it’s
also inefficient. In the phase that follows, bigger companies step
in or emerge from among the smaller ones. Consolidation creates
efficiency, providing more reliable products for consumers and
better value for companies.
The Power of the Immaterial
In the illegal market, product was the main focus for cannabis
sellers. In the legal market, the focus is different. When a
company relies on the full complement of marketing, intangible
assets become important. That’s why GoodFellas is valuable to
TransCanna — not just for its cannabis but for the Daily brand
attached to it.
And while intangible assets are normally talked about in terms
of brand and IP, there’s another sort of asset that gets much less
publicity and that the cannabis industry is bringing to investors’
attention: legal licenses.
Licenses of various sorts are important for a wide range of
industries, from food production to mining. But they have a
particular prominence in the cannabis industry because tight
regulation has created a scarcity of licenses. When TransCanna
subsidiary TCM Distribution Inc. gained cannabis
manufacturing and distribution permits from the City of Adelanto,
California, it was an important step in the company’s growth
within the state. And when a deal like TransCanna’s acquisition of
Lyfted is announced, the target’s cannabis licenses are often
mentioned. These licenses are a crucial asset and one that
investors are concerned about. Without the licenses, the business
can’t function.
The prominence of licenses is a new feature of investment for
those going into cannabis. But it could be a feature that helps
investors recognize these assets in other companies. Cannabis
companies are increasingly about immaterial assets, and immaterial
assets are increasingly about licenses as well as IP.
Keeping Profiles High
In such an atmosphere, cannabis companies are working hard on
keeping their profiles high while building up their portfolios of
products.
Last year Medmen Enterprises Inc. (CSE: MMEN) (OTCQX:
MMNFF) soared 60% in one week when the company announced
the deal to buy PharmaCann. PharmaCann is working to complete its $20-million cultivation center, which
must be operational before the acquisition can be completed to
comply with Ohio law, which requires a licensee to have operating
certification before transferring a license to another owner. The
deal will double the number of states where Los Angeles-based
MedMen has licenses to operate – expanding the firm’s reach to 12
states with 66 retails stores and 13 cultivation facilities.
The agreement between Cronos Group Inc. (TSX:
CRON) (NASDAQ: CRON) and MediPharm Labs
Corp. will supply Cronos
Group with approximately $30 million of high-quality,
private-label cannabis concentrate over 18 months and, subject to
certain renewal and purchase options, potentially up to $60 million
concentrate over 24 months. In addition, Cronos Group and MediPharm
Labs have entered into a multiyear tolling agreement, where Cronos
Group will supply bulk cannabis to MediPharm Labs’ state-of-the-art
extraction facility in Ontario.
With the completion of the acquisition, Manitoba Harvest will
operate as a wholly owned subsidiary of Tilray Inc.
(NASDAQ: TLRY), leveraging the expertise of Tilray’s
global cannabis industry expertise. “Tilray’s acquisition of
Manitoba Harvest is a milestone for the cannabis industry,”
said Tilray president and CEO Brendan Kennedy.
“It builds on the strategic partnerships we have formed with
consumer brand industry leaders and demonstrates our track record
of disrupting the global pharmaceutical, alcohol, CPG, and
functional food and beverage categories. We’re excited to work with
Manitoba Harvest to develop and distribute a diverse portfolio of
branded hemp-derived CBD food and wellness products in the U.S. and
Canada.”
The newest test results from GW Pharmaceuticals Plc
(NASDAQ: GWPH), the world leader in the science,
development, and commercialization of cannabinoid prescription
medicines, expands the company’s knowledge of Epidiolex and its
potential use beyond the current indications. “Data from previous
controlled clinical trials of EPIDIOLEX have shown clinically
meaningful seizure reductions and consistent safety and
tolerability in children and adults with Lennox-Gastaut syndrome
and Dravet syndrome,” said Dr. Elizabeth
Thiele, the lead investigator of the trial, director of the
Herscot Center for Tuberous Sclerosis Complex at Massachusetts
General Hospital, and a professor of neurology at Harvard Medical
School. “Based on the positive results of this trial in TSC
patients, Epidiolex, if approved for this additional indication,
may become an important treatment option also in this disease state
with significant unmet medical need.”
The cannabis industry is clearly evolving with big money,
consolidation and growing intangible assets playing pivotal roles
in the growing strength and consistency of the sector.
For more information on TransCanna Holdings, visit TransCanna
Holdings Inc. (CSE: TCAN) (FRA: TH8)
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