Like any emerging industry, the cannabis industry has reached that time when consolidation starts taking place. Several reasons have made such a step inevitable.
First, way too many businesses rush to get licences in each state that legalizes recreational or medical marijuana. Not all those businesses that open are likely to succeed, so it is only logical that the ones not doing well get gobbled up by those that are having a better run in the market.
Secondly, too many companies in a restricted marketplace trigger a rush to the bottom. The different pricing models adopted to get an edge in the market exert pressure on the profit margins of all the companies involved. Before long, many start falling by the wayside, and the stronger ones acquire those that are failing or struggling.
Thirdly, the risk of oversupply also creates fertile ground for consolidation. Most cannabis businesses are forced to be vertically integrated because of the clash between federal law and state-level laws. Many therefore end up growing cannabis that they are unable sell, and these stockpiles lock up a lot of valuable capital. The entities that command a bigger share of the retail space often end up acquiring those with excess supply.
These forces are already exerting their impact upon the nascent cannabis industry in the U.S. Last year, MedMen Enterprises announced that it was acquiring PharmaCann in a deal worth $682 million. However, this deal still has a few more months before they put ink to paper.
In the meantime, iAnthus Capital Holdings last week closed on a deal to acquire MPX Bioceutical. This acquisition is worth more than $630 million. This makes it the largest marijuana deal in the U.S. so far. The MedMen deal will eclipse it when it is finally concluded, but that is still months away.
With the stroke of a pen, iAnthus Capital Holdings has increased its footprint from just six states to 11 after the acquisition of MPX Bioceutical. The number of licensed dispensaries has also grown from 19 to 63, all without the hassles and costs associated with processing new applications in all those jurisdictions.
The deal also now gives iAnthus a combined grow space of 210,000 square feet. The company targets to expand this to 600,000 square feet so that all the stores/dispensaries can be amply supplied in the coming years.
The cannabis industry, including The Flowr Corporation (TSX.V: FLWR) (OTC: FLWPF) and The Green Organic Dutchman (TSX: TGOD) (OTCQX: TGODF) welcome any consolidation that helps to deepen and stabilize the cannabis industry.
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