After the tremendous political strides the cannabis industry made in 2020, 2021 has a lot to live up to. Experts and insiders agree the coming year could have a lot in store for the maturing cannabis industry, from acceleration of M&A and funding in the capital markets to continuing momentum toward legalization on the state level.



Experts predict that shifting political preferences toward legalization in the U.S. and globally will kick off a flurry of consolidation in the cannabis industry. But mergers and acquisitions in 2021, following last year's onset of COVID-19 and a pre-pandemic market rout that rocked the cannabis sector, will be much more intentional and accretive than the land grab M&A of more cash-flush years. 

"We started a few years back doing acquisitions for the wrong reasons, really going into these green meadow opportunities where they had a lot of cash available, and they're just trying to grab market share. They realized that that was the wrong approach," ETF Managers Group cannabis research and banking expert Jason Wilson said in a December interview. "They've come to the realization that they have to run like any other CPG company. And they're focusing on synergistic acquisitions, to basically get their products into expanded marketplaces."

Eric Berlin, cannabis law expert and partner at Dentons, added that M&A will, on the whole, be more strategic, especially when it comes to targeting distressed assets — companies or brands that haven't weathered the trials of the past few years particularly well but still have value.

"Coming out of where we have been — difficult times health-wise and economically — there will be folks who are doing better than others," Berlin said. "Some companies are just going to be seeing the end of day. They just can't get the funding, they haven't proven success, but they have good assets. So those are going to be some of the kinds of strategic acquisitions that will occur."

There's evidence to suggest consolidation has already begun, even before the outcome of the Senate power struggle was decided in Georgia and before President-elect Joe Biden would assume the highest office in the U.S. with a pledge to decriminalize cannabis. 

Aphria and fellow Canadian cannabis giant Tilray, for example, announced in mid-December a $4 billion "reverse acquisition" to create the largest cannabis company by revenue. On the heels of the transaction, market research firm Viridian Capital Advisors remarked that the transaction "signals a new phase of Canadian market rationalization," adding that there may not be mergers of similar magnitude in U.S. cannabis, but multistate operators will likely continue to expand capacity in newly-legal states and solidify positions in ones on the precipice of legalization through strategic transactions. Viridian also forecasted an acceleration in dealmaking, estimating the industry had a backlog of about $2 billion dollars in undisclosed deals heading into 2021.


Some deals will be struck for their ability to strategically position companies for entrance into the U.S. market. Because cannabis is still federally illegal in the U.S., companies that trade on major U.S. exchanges can't legally engage in the U.S. cannabis industry. That means that major Canadian cannabis companies and interested consumer packaged goods players, alike, must watch from the sidelines as U.S. multistate operators get first crack at an industry poised to be worth $35 billion by 2025, according to New Frontier Data.

Still, there are ways to secure footing in this tenuous space. In late November, Aphria acquired Atlanta-based craft brewer SweetWater Brewing Company in a $250 million deal. CEO Irwin Simon said it would "accelerate Aphria's entry into the U.S. ahead of federal legalization."

Katie Ashton, co-chair of Dentons' cannabis group, said the deal was as much a bet on infused beverages as it was on legalization.

"Cannabis companies think beverages are going to be a huge seller in the U.S.," she said. "And I think that companies are really starting to line up some bets for what they see happening in the U.S. federally at some point in the future."

With such a proliferation of infused beverages in the space alongside major investments from beverage giant Constellation Brands, it's easy to imagine other CPG companies getting similar ideas.


Speaking of investment, capital is expected to get easier to come by in 2021 as funding and M&A accelerate in the space. Even before the coronavirus pandemic hit, the amount of capital flowing into the cannabis industry had fallen precipitously, as investors, burned by the market rout, tightened their purse strings. According to Viridian Capital Advisors, cannabis companies raised about $2.6 billion in the first half of 2020, which represented a 66 percent drop year-over-year.

However, on the back of tremendous political progress for the industry in 2020, and "essential" designations amid the pandemic by authorities in legal states, more funding is expected to flow into cannabis, even some from new sources. 

Cannabis ownership skews toward retail investors, but Owen Bennett, of investment banking firm Jefferies, wrote in a note that a Democrat Senate could be "a trigger for much increased institutional investment" if passed legislation is accompanied by banking reform and market access.

That likely won't spell the end of popular funding vehicles discovered when capital was harder to come by. Sale leaseback agreements with Real Estate Investment Trusts (REITs) became popular mechanisms for U.S. multistate operators to raise cheap cash.  According to Viridian, capital raised by the real estate sector increased 53 percent year-over-year in the first half of 2020, accounting for about 18 percent of total capital raised. Special Purpose Acquisition Companies (SPACs), which went mainstream in cannabis in 2019, still represent very real pathways to the public markets. Since plant-touching U.S. companies cannot trade on major exchanges, however, the pool of acquisition targets are limited to international cannabis companies and ancillary companies. 

Clever Leaves Holdings CEO Kyle Detwiler, whose company just went public via a SPAC, said "time will tell" whether there are enough suitably scaled industry assets for cannabis-focused SPACs.

"I think what's really telling is that some of those cannabis SPACs are repositioning to non-cannabis assets. So maybe that says something about the challenge of finding enough suitably scaled cannabis assets to partner with, or maybe just the weather wasn't right this year, and 2021 will be a little bit better," he said.


In December, the United Nations Commission on Narcotic Drugs voted to remove cannabis from the most strict schedule under the Single Convention on Narcotics. An acknowledgment by member countries of the medical utility of cannabis, the decision is expected to add kindling to the fire of legalization efforts abroad.

Meanwhile, the race to establish a lead in global medical cannabis export is on, according to Prohibition Partners. Aphria's reverse takeover of Tilray was among other things a big bet on the international cannabis market, executives told Bloomberg. Tilray has global reach and a production hub in Portugal, which Reuters called the "gateway to Europe's medical pot market." 

Some companies are betting big on South America. Clever Leaves Holdings, for example, has cultivation and GMP-certified production facilities in Colombia. Detwiler told Cheddar it's a strategic play he hopes will pan out as more countries legalize on the back of the United Nations' decision.

"The dominoes are starting to fall, and that's going to be very good for a company like Clever Leaves because we can be, sort of, the breadbasket to the world of cannabis, and that will create a very interesting market opportunity for us," he said.


Closer to home, the world will have its eyes trained on newly legal U.S. states, as they push forward with plans to regulate and roll out the new adult-use and medical programs voters approved in November. New Jersey and Arizona, the states the industry was most excited for during the fall election, will be among the most compelling to watch due to their large populations, strategic locations, and potential market size.

But it won't just be the newly legal states the industry is watching. New Jersey's strategic location near a number of medical cannabis states was expected to kick off a "domino effect" in surrounding New England states. And that's already proving true.

On Wednesday, New York Gov. Andrew Cuomo announced a proposal to legalize cannabis. In a tweet, he underscored the valuable tax revenue it could generate and an "equitable structure" that could offer "licensing opportunities and assistance" to entrepreneurs from communities impacted by the war on drugs.

It's hardly a surprise to see movement in New York, which pre-pandemic seemed to be racing New Jersey toward legalization, and is desperate for new revenue sources amid the financial devastation of COVID-19. But New York likely won't be the only state motivated to legalize for the financial benefits of a new and taxable industry and proximity to existing legal markets. Pennsylvania's governor has been outspoken about it and Marijuana Business Daily CEO Chris Walsh also predicted Connecticut, Maryland, Virginia, and Arizona's neighbor New Mexico could possibly move to legalize in 2021.


Industry insiders are much more bullish on the fate of federal cannabis reform now that Democrats have won Georgia's two runoff Senate elections. Still, even with Democratic Vice President Kamala Harris poised to break any ties in the chamber that will hold 50 Republicans and 50 Democrats, experts don't expect the equity-focused Marijuana Opportunity Reinvestment and Expungement (MORE) Act to drum up enough support among the comparatively conservative Senate unless they move to eliminate the filibuster, according to analysts at investment bank Cowen.

Cowen analysts expect in the second half of 2021 or first half of 2022 passage of a modified version of the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, wherein the federal government officially recognizes the legitimacy of state-level cannabis programs. 

"What we're envisioning is a modified version of a piece of legislation called the STATES Act that would not allow for interstate commerce, but it would make operating at the state level much easier, and it would have meaningful capital markets implications," Cowen's Vivien Azer told Cheddar during a December interview.

Even so, there will be a gradual trend toward more bipartisan support for cannabis in Congress. As conservative congresspeople from traditionally red states like Montana and Mississippi watch their home states legalize — or see neighboring states rake in the tax revenue — they will likely come around, adopting the states' rights approach to cannabis legalization favored by Republicans, Dentons' Ashton said. Cannabis as a social justice issue will continue to gain traction among Democrats, especially after the nationwide reckoning with police violence and systemic racism that kicked off in 2020.

"As with everything in cannabis, I think it all starts with the local level. And I think it's local communities, followed by states, and then followed by the Federal that are really going to be leading the charge," she added.

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