In September 2016, this blog noted that analysts were predicting higher levels of M&A activity in the marijuana industry. Early last month, we commented that the launch of several Canadian marijuana "streaming" companies – which provide financing to start-ups in exchange for a portion of the start-up's future product at a fixed price (or a percentage of the start-up's future profits from that product) – promised to provide an alternative avenue of raising capital for start-ups.

According to data published by Viridian Capital Advisors, a strategic and financial advisory firm dedicated to the cannabis industry, investment and M&A activity in the global industry increased in 2016 and has continued to increase in 2017.

Viridian's 2016 data indicates that (all dollar amounts in USD):

  • There were 315 capital raises in 2016 (247 by public companies, 68 by private companies) totaling $1,213.3 million ($940.5 million by public companies, $272.8 million by private companies).
  • Equity raises outperformed debt raises in both the number of transactions and dollars raised: there were 186 equity raises totalling $1,006.1 million, compared with 129 debt raises totalling $207.1 million.
  • The "Cultivation & Retail" sector raised the most capital in 2016 ($473 million), outpacing all other sectors, including the "Biotech/Pharma" sector (which raised $344.5 million).
  • A total of 99 M&A deals were closed in 2016 (79 by public companies, 20 by private companies). M&A activity increased in nearly every sector in 2016 (compared with 2015).
  • The "Cultivation & Retail" sector was the most active, with cultivators seeking economies of scale as the commoditization of cannabis exerted downward pressure on prices and margins.
  • Public companies were the most aggressive acquirers, with stabilizing stock prices used as currency for acquisitions.

Viridian's 2017 data shows that from January 1 through June 30, 2017 (all dollar amounts in USD):

  • There have been 188 capital raises (119 by public companies, 69 by private companies) totalling $1,290.6 million ($978.6 million by public companies, $312.0 million by private companies).
  • Equity raises continue to outperform debt raises in both the number of transactions and dollars raised: there have been 147 equity raises totalling $1,090.5 million, compared with 41 debt raises totalling $200.1 million.
  • Part of the increase in capital raises is due to the new structure of capital being brought to the Canadian cultivation market through "streaming" arrangements from several new financing groups.
  • The "Cultivation & Retail" sector has raised the most capital (with approximately $600 million raised), followed by the "Biotech/Pharma" sector (approximately $310 million raised).
  • A total of 81 M&A deals (72 public, 9 private) have closed. From January 1 to June 30, 2016, only 38 deals had been completed.
  • With 21 deals completed, the "Cultivation and Retail" sector has been the most active; and it has been much more active than it was from January 1 through June 30, 2016 (during which time only 6 deals had been completed). The second most active category has been the "Infused Products & Extracts" category (16 deals completed), followed by the "Investments/M&A" category (11 deals completed).

Norton Rose Fulbright Canada LLP is uniquely experienced in the industry, having recently advised MedReleaf Corp. (TSX:LEAF) on its initial public offering and secondary offering of 10.6 million common shares at CDN$9.50 per common share for gross proceeds of CDN$100.7 million. The team was led by Paul Fitzgerald, Jacob Cawker and Sean Williamson.

The author would like to thank Scott Thorner, Summer Student, for his assistance in preparing this legal update.

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