Cannabis Industry M&A Could Heat Up This Year
February 7, 2023Cannabis merger and acquisition activity could increase this year, market research group BDSA predicts, owing to ongoing price compression and competition from the illicit market. According to BDSA data, equivalent average retail prices across mature markets (including AZ, CA, CO, NV, and OR) fell 13% between Q3 2021 and Q3 2022, with some markets seeing price compression higher than 20%.
Multi-state operators like Cresco and Green Thumb have noted price compression across their markets in recent quarters. Cresco already has one major acquisition underway as it looks to continue gaining scale amid the pricing squeeze—a $2 billion purchase of Columbia Care. That deal took a step forward last fall when the two companies struck a $185 million deal to offload assets across New York, New Jersey, and Massachusetts to Sean “Diddy” Combs, and is targeted to close around the end of the first quarter.
“MSOs will not be immune to the challenging macro-economic factors, but most will continue to see topline revenue growth regardless of federal legalization or banking relief, as they are more likely to be insulated from a downward economic environment relative to competitors,” BDSA noted. “Given the better growth conditions in new and emerging markets, it’s likely that M&A budgets of the largest MSOs will be concentrated in the Midwest and Northeast, though social equity parameters in some markets (such as New York) may make it more difficult for MSOs to gain a dominant market share.”
The Northeast region in particular appears primed for further investment and growth looking ahead. “The annual sales total across these markets is forecast to grow approximately 30% in 2023, and more than double between 2022 and 2026,” BDSA said. “New Jersey is expected to see annual adult-use sales more than double in the coming year to reach approximately $925 million in 2023, driving total 2023 legal sales to approximately $1.2 billion.”
While New York is expected to be the biggest new cannabis market this year, its adult-use rollout has been plagued by a slow start, hampered by bureaucratic issues and a thriving, unlicensed gray market. The Empire State has now issued 36 adult-use retail licenses, and New York City Mayor Eric Adams has said he will crack down on unlicensed cannabis retail, which has proliferated around the city. Still, BDSA noted, “previous examples such as California’s struggles with the illicit supply chain suggest that gray market competition will be a persistent feature of the New York adult-use market, especially if retail availability in the state remains limited.”—Daniel Marsteller
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