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New Metrics in Cannabis to Dictate M&A Activity – Cannabis Hemp Blog

Shifting priorities for mergers and acquisitions (M&A) in the cannabis industry are uncovering shifting targets for companies and investors, according to a business expert.

In an interview with Investing News Network (INN), Ashley Chiu, Cannabis Strategy Advisor at EY Canada, discussed the state of mergers and acquisitions in the cannabis industry, discussing the type of acquisitions that companies are currently looking for and how a US entry might end up looking for Canadian players.

All in all, one takeaway was clear: As players take heed of current financial conditions, the days of reckless spending by large cannabis operations appear to be diminishing.

Chiu said capacity and low producer costs, which used to be among the most desirable features of the Canadian cannabis sector, have lost weight in the value, quality and price of products entering the market. market.

“You’re starting to see a lot of companies reassessing their capacity needs, looking at their international operations, trying to figure out which markets are mature enough that they really have a meaningful presence,” Chiu said.

The expert believes that the difficulties in the current financial landscape could push some of the smaller cannabis names in the public markets towards mergers in order to strengthen their position.

“I think there might be intermediaries who will consider merging with each other to see if they have complementary assets and synergies that ultimately improve the business when combined,” commented EY Canada’s Chiu.

International opportunities for Canadian companies

Even before the coronavirus pandemic upended capital markets, cannabis names in Canada were already winding down their bold international expansion plans.

Chiu said key advanced markets like Israel and Germany are still intriguing various companies, but entry or shifts in presence for already established market players can be done through partnerships rather than outright acquisitions. simple.

When asked if any Canadian names might enter the U.S. market at some point, Chiu told INN she’s encouraged by the potential for reform in the country, but right now the only option it has seen is in the hemp ventures conducted by some Canadian growers. .

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Hemp-derived cannabidiol (CBD) has recently sparked an explosion of interest in the United States thanks to a technicality that makes it legal in the country.

However, the United States Food and Drug Administration has not provided specific guidelines for the compound and its products. At the same time, the drug agency has issued warnings to manufacturers for promoting false claims attached to CBD products.

Despite the potential for hemp-derived CBD in the eyes of many experts, Chiu said the U.S. market is extremely complicated given regulatory uncertainty and the fragmented status of the space.

“Without clear regulations, I think that environment becomes really difficult to operate,” Chiu said.

Where are the Fortune 500 cannabis deals?

Long Term Cannabis Investors will remember the rumors than the likes of PepsiCo (NASDAQ:DYNAMISM) and even The Coca-Cola Company (NYSE:KO) were considering acquiring Canadian producers.

While a select group of large companies made entries, such as Constellation Brands (NYSE:ZST) and Altria (NYSE:MO), the expected flow of Fortune 500-like companies with splashy, rapid cannabis entries hasn’t quite happened.

Chiu said that in the early days of cannabis investing, there was a big question about the benefits of being a frontrunner from the perspective of big foreign companies.

With the current state of the industry, with all the challenges she has been through, Chiu said she is encouraged by the next stage of registrations.

“The next entry is going to be a lot more meaningful and a lot more focused now that we know there’s that second-player advantage,” the EY Canada pundit told INN.

“I would say that I think there will be more entry from these adjacent players, the more well-capitalized, more mature and more established companies, but it’s really going to take more milestones than I think we need to achieve. before that happens.”

What could be driving cannabis mergers and acquisitions in Canada

Discussing interest in acquisitions and what might be driving a cannabis deal right now, Chiu said that while intellectual property (IP) or brand-based deals might still be key, it’s important to consider the power of both an IP option or a given brand. .

“Looking across the industry right now, I think there are a few companies that have been able to continue to build their brand and create that value for their consumers,” Chiu told INN.

However, this cannot be said for all marijuana companies. A recent report of the Brightfield Group confirmed what many observers of the Canadian cannabis market think that brands are not yet really creating relationships with consumers.

After surveying 3,000 Canadian consumers, the group showed that no brand got more than 41% recognition. Most did not even exceed 15%.

“When product options increase and brand awareness remains low, consumers become confused. They can experience decision fatigue when they don’t see a product that matches their complex purchasing decisions,” said the Brightfield group in its report.

Don’t forget to follow us @INN_Cannabis for real-time updates!

Securities Disclosure: I, Bryan McGovern, have no direct investment interests in any of the companies mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or completeness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the views of Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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The post office EY expert: New cannabis metrics to dictate M&A activity appeared first on Investment News Network.


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