In 2019, there were over 290 merger and acquisition transactions in the cannabis industry. We’re now over 3 months into 2020 and there have been just 20 so far, leading many investors to questions whether or not the novel coronavirus has killed the marijuana industry’s M&A streak.
COVID-19’s Impact on Cannabis Investments
Due to COVID-19 and its impact on the global economy, since the beginning of 2020, the S&P 500 index is down nearly 20%. Worse than that, the ETFMG Alternative Harvest ETF (NYSE:MJ), an exchange traded fund that seeks to track the performance of cannabis-related investments in the Prime Alternative Harvest Index, is down nearly 40% year-to-date.
With so many cannabis companies’ stock prices crushed down near 52-week and all-time lows, their cost of capital has greatly increased, making both capital raising and stock-based transactions far less feasible. Once characterized by its constant merger and acquisition activity, recent market volatility has put most of the marijuana industry’s M&A on freeze for the time being. That said, there are still some noteworthy pockets of activity.
From Leaders to Laggards
In 2019, for example, multi-state marijuana license holder Green Growth Brands Inc. (CSE:GGB) (OTC:GGBXF) announced a handful of major acquisitions ranging from Spring Oaks Greenhouses, Inc. in Florida to Henderson Organic Remedies, LLC in Nevada. Fast forward to 2020, and Green Growth Brands has received a notice of default from MXY Holdings LLC related to a $5 million USD note and six of the company’s CBD-focused subsidiaries: Green Growth Brands LLC, GGB Beauty LLC, GGB Licenses LLC, Green Growth Brands Realty LLC, GGB Kiosks LLC, and GGB GN LLC are now under a receivership order.
Another active acquirer in 2019, multi-state cannabis operator iAnthus Capital Holdings, Inc. (CSE:IAN) (OTC:ITHUF) has not fared much better. Just this week, the company announced that it did not make applicable interest payments due on its 13.0% Senior Secured Debentures and 13.0% Unsecured Convertible Debentures due on March 31, 2020.
According to data compiled by Viridian Capital Advisors, the week ended March 20th, 2020 saw a 66.66% decrease in merger and acquisition activity versus the same period in 2019.
As the COVID-19 slump accelerated into April, for the week ended April 3rd, 2020, Viridian recorded just one M&A transaction, compared with 14 in the prior year period representing an approximate 92.86% year-over-year decrease in merger and acquisition activity within the sector.
Pockets of M&A Activity
Looking outside the cannabis sector specifically, however, we can still see some noteworthy M&A activity.
Emerald Organic Products Inc. (OTC:EMOR), which merged with CBD brand Pura Vida Health, LLC back in January of 2019, has been on a deal streak as of late. With a recent $5 million USD infusion from a private equity firm and another $20 million USD financing line at its disposal, Emerald Organic Products has acquired two healthcare companies in the last two weeks alone. On March 27th, 2020, EMOR announced the acquisition of a 51% controlling stake in Bonsa Health, “a leading digital pharmacy capable of same day delivery of Rx medications anywhere in the United States.” Just a few days later, EMOR announced the acquisition of Carie Health, “a leading telehealth and virtual care technology and service solutions company.”
Beyond Emerald Organic Products’ M&A activity in the healthcare industry, the tech sector seems to have stayed active too. Apple Inc. (NASDAQ:AAPL) recently announced the acquisition of Dark Sky, and Akerna Corp. (NASDAQ:KERN) yesterday announced the acquisition of Trellis, just to name a few.
Companies like Green Growth Brands and iAnthus may be panicking right now as their balance sheets become strained, but it isn’t all doom and gloom out there. The underlying cannabis industry is actually thriving right now, making us quite confident that both of these companies will come out of this alive.
As for M&A specifically, Baron Rothschild once said “the time to buy is when there’s blood in the streets,” and clearly, executives at Apple, Emerald Organic, and others with a long-term vision seem to be taking that advice.
While M&A activity has certainly dried up in certain sectors, it definitely isn’t dead.
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