Q3 2021 M&A Highlights: Who’s Moving in US Cannabis and Why?

2021 has been a moonshot year for cannabis, driven by new markets coming online, existing markets continuing to exceed growth expectations, and higher than ever consumption rates. Via BDSA Market Forecasts, we have seen ~41% YoY market growth and are heading toward a global TAM of $61b by 2026. Another critical growth indicator is the influx of M&A transactions, both in number of deals and average deal size. Between January-September 2021 we’ve seen ~240 transactions (compared to ~60 in the same period last year).¹

We’d LOVE to cover every deal with our cannabis market insights data, but that would be a really long post. INSTEAD, we are going to take a moment to review (and gawk at) some of the biggest, most unique deals that took place in Q3 2021, and why we think they are notable. So, strap in for this quarter’s M&A highlight reel:

July

Harborside Closes Acquisition of Sublime (July 5, 2021): In early July, Harborside acquired 100% of issued and outstanding shares of Sublime for $43.8m (~1.8x to estimated 2021 revenue). Harborside is a long-standing, respected retailer in CA, whereas Sublime is a leading manufacturer in CA, best known for their Fuzzies branded pre rolled (and other Inhalable) products.

There’s a lot to unpack in each of these deals and not enough space so let’s hit some cannabis market insights: At a macro level, BDSA Retail Sales Tracking showcases pre rolled sub-category as the fastest growing segment in the CA market since 2020. At a micro level, BDSA is tracking Sublime as the #2 pre roll ($288m market January-July 2021) player and #8 Inhalables ($1.86b market January-July 2021) player YTD in CA, and has seen over 60+% YoY growth, owning over 8% of CA pre rolled marketshare YTD 2021 via BDSA Retail Sales Tracking. Both companies have a strong history of successful innovation, and with synergies to be realized on both sides, this positions Harborside well as it ramps up as not just a leading retailer in CA, but a strong house of brands (noting that Sublime also increases their state-wide distribution!). An emphasis on brand build is a trend we expect to see more of from larger single state operators and MSO’s as cannabis matures as a Consumer Packaged Good.

Verano Closes Agri-Kind/Agronomed Acquisition (July 12, 2021): Since going public in February, Verano has been on an M&A spree, with July bringing in the close of AgriKind/Agronomed (“The Company”) for $66m cash/$49.5m stock. The Company has two cultivation/production facilities in PA, with permits to open six retail locations. So why are MSO’s targeting PA, and even (at times) willing to pay a premium on assets? (2020 saw acquisitions from Cresco, Trulieve, Harvest, Ayr, and Jushi).

PA is a limited license, medical-only market, and has the 5th largest population in the US. PA saw $778m total sales in 2020 and BDSA is already PA at $706m total sales between January-July 2021, with BDSA forecasting a $1.3b market by the end of 2021. With growth like this (and a high population and Adult-Use legalization still to come), PA is hard to ignore and worth spending a few bucks to enter. As a result, PA has seen 40% more transactions YTD 2021 compared to 2020. Something tells us PA operators will remain attractive acquisition targets for MSO’s over the next 12-18 months.

AUGUST

Eaze Announces Acquisition of Green Dragon (August 18, 2021): August had a lot of movement to unpack (e.g. Jushi entering OH, Tilray acquiring a 21% stake in MedMen, etc). How can we skip over deals like this that are sure to have an impact on not just those players, but overall markets? It’s to highlight something pretty unique: the first SaaS/Plant-Touching merger we’ve seen.

Eaze purchased Green Dragon for an undisclosed amount, solidifying the Company as one of CA’s largest MSOs and the largest cannabis delivery service in the US. Eaze had existing operations in CA and MI, while Green Dragon has 15 retail locations in CO and 2 in FL. Combined, the Company now has 43 delivery and storefront locations across four of the largest and fastest growing US markets (Combined $5.76b Total Cannabis sales January-July 2021 for CA, CO, FL, MI). This not only positions the Company for fast expansion over the next 12-18 months, but bodes well for convenience-driven consumers in these markets. OH, and did we mention this is another example of MSO’s building out their house of brands? No? Well Green Dragon also owns a portfolio of strong brands such as Everyday, Lost Lotus, Sugarhigh, Tropix, Fuel, Bleezy Blunts, and more.

SEPTEMBER

TerrAscend Announces Acquisition of Gage (September 1, 2021): TerrAscend announced plans to acquire Gage, a leading MI Retailer. The transaction includes 3 cultivation facilities, 9 grow arrangements, and 10 retail locations (with additional permits for more cultivation and retail) for an estimated $545m (~1.8 revenue multiple). The transaction brings TerrAscend into MI, the third largest cannabis market in the US today (BDSA is tracking $998.5m in Total Sales from January-July 2021). Not only is Gage known for its operational efficiency and strong cash position, the transaction also gives TerrAscend access to Gage’s exclusive licensing agreements with top brands, including COOKIES and Slang, a crucial competitive edge in the market.

Our cannabis market insights show that some of the larger MSO’s have been hesitant to enter MI in part due to its unlimited license structure. Fragmentation and price compression makes MI an opportune market for strong operations that can create brand equity, all of which bodes well for TerrAscend tailwinds following this transaction.

Cresco Closes Acquisition of Cultivate (MA) (September, 3, 2021): How is it we are on the last highlight and just now mentioning an East Coast transaction? Given the growth the Northeast/East Coast has seen over the last two quarters, it seems surprising but it’s really a testament to how much is happening. So, let’s dig in: Cresco acquired 42,000 additional canopy and 3 additional retail locations in the transaction for a purchase price of $90m, bringing its total MA presence to 64,000 square feet of canopy and 4 dispensaries.

MA is the largest Adult-Use cannabis market in the Northeast, with BDSA tracking retail sales of $874m from January-July 2021, which represents a staggering 112% YoY growth. The MA market is also ripe for Cresco to double down on wholesale strategy, given MA’s limited cultivation licenses and relatively high pricing compared to other markets. Something tells me we will be seeing a lot of Northeast movement to come over the next ~18 months, and BDSA will be ready to unpack those right alongside you as well.

And that’s a wrap on Q3 M&A Highlights for 2021.

“But you guys didn’t cover the GlassHouse canopy deal; OR Greenlane x Kush Co; OR Planet 13 entering Florida, OR,…the list goes on.” Trust us, we KNOW, but there are simply too many exciting deals to touch on all of them (hint: this is a good thing). Also, did you really want to read a 20+ page blog post? We didn’t think so.

The overall take-away from our cannabis market insights is that M&A activity in cannabis is exploding – whether its number of deals, average deal size, total consideration, or associated press, 2021 has and will continue to be a big year for the industry. NOW any bets on what Q4 has in store? We, personally, cannot wait to find out…