'Perfect Storm' for Cannabis M&A in 2023

Small and midsize companies will see the most activity.

While the capital fundraising scene for cannabis companies in 2022 contracted considerably from the year prior, the outlook for 2023 is for a spike in mergers and acquisitions, several experts indicated this week.

That will be particularly true for smaller and mid-size companies, a number of industry observers said, instead of the high-dollar acquisitions that have made headlines in recent years, with large-scale multistate operators gobbling each other up.

“(U.S.) MSOs raised about $5.1 billion in 2021, and last year, that figure was down to about $1.2 billion,” noted Canadian Securities Exchange CEO Richard Carleton during an industry panel on Thursday.

Big MSOs Get Money

But, Carleton noted, bigger U.S.-based MSOs that trade on the CSE are “still getting financing done.”

“The MSO’s that are able to lever the public markets for continued access to capital are in fact able to get stronger, and take advantage of the new states coming online, to do acquisitions of distressed assets in the jurisdictions they’re currently working,” Carleton said.

Though Carleton noted that the fundraising trend was part of a broader economic downturn in investing for companies of all stripes, another panelist said it’s precisely that type of atmosphere that has primed the U.S. cannabis industry for a “perfect storm” of M&A.

Bullish On M&A

“I’m actually very bullish on M&A” for 2023, said Zachary Kobrin, a Florida-based partner at Akerman LLP.

“I just think, the next 18 months, there’s going to be a flood of M&A, but small M&A,” Kobrin said, echoing a point by Carleton that leading MSOs are still able to obtain financing for expansion plans.

“We’ll see a bunch of $5 million acquisitions. Instead of one MSO buying another MSO, one MSO may just scoop up a bunch of dispensary licenses in Illinois or a bunch of smaller licenses in Maryland,” Kobrin predicted.

That analysis is supported in part by the New York-based Viridian Capital Advisors Deal Tracker, which reported this past week that capital raises are down in the first week of 2023 by 95.7% from the first week of 2022.

That set the stage for Viridian’s not-so-rosy outlook for the coming year, which it predicted would be full of cannabis company failures and distressed assets ready for acquisition deals.

“The pain in 2023 will revolve around business failures, which we expect to set new records,” Viridian forecasted. “We expect the capital market slowdown … to result in an upswing in M&A activity. MSOs will find buying distressed companies to be a more cost-efficient method of expanding capacity or entering new markets.”

Long term, however, that should make for a healthier nationwide cannabis industry overall, Viridian predicted.

John Schroyer


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