Cannabis’ Top 5 M&A Fallacies and Self Deceptions
Cannabis M&A activity is expected to heat up in 2025 due to falling interest rates, consolidation pressures, emerging markets and RIII-induced cash flow gains.
I have been a participant in many cannabis & non-cannabis transactions.
While every deal carries risk (~80% of M&A does not build shareholder value), the stakes in cannabis might be higher than normal. MSOs and LPs just don’t have the financial and strategic runway to screw things up or learn as they go.
One of my key learnings...
Its tough to win in M&A when your firm is vulnerable to these 5 self-deceptions and fallacies:
1. “We can walk away from this deal”
You can but often don’t. Those with a vested interest in the transaction – management, directors, suppliers and bankers – will push hard for a deal especially when you are close to the finish line.
Although the Board should have the wisdom and fiduciary responsibility to act objectively, they often don’t because they lack independence, knowledge or moxy.
2. “M&A performance is all in the numbers”
Getting the numbers right is just the beginning, and often the easiest part of the effort. The harder parts are less formulaic and include: figuring out the people side of the deal (e.g., who will be in charge); knowing where to merge the operating models and; identifying how to elevate capabilities post transaction.
3. "Any experienced negotiator can be a M&A dealmaker”
Negotiating high stakes transactions is very different than securing product distribution or even shepherding a joint venture.
In addition to negotiating elan, you and your team need to have a good grasp of tax, operations, regulations, and capital market considerations plus skill in communications and financial analysis.
4. “Our firm is very good at due diligence”
Not typically, particularly when you factor in points 1 & 2 plus limited expertise, time and resources. No wonder smart dealmakers hire external firms to augment their due diligence and explore success-dependent hypotheses.
5. “There’s time for post-merger planning after the deals closes”
Dealmakers don’t plan to fail they fail to plan, both comprehensively and in advance of closing. All business are difficult to integrate. Cannabis ones are notoriously so given their complex and often immature operating models.
“Our core market success is replicable in adjacent markets”
Companies are frequently unable to replicate their success in new markets. Cannabis firms are especially at risk since regulations vary by state/province.
Moreover, the target firm’s success could trace to non-replicable factors such as early license acquisition or first mover advantage.
Let’s talk. I help leadership teams find, plan, execute and integrate acquisitions and merged entities.
#deals #mergersandacquisitions #postmergerintegration #MSOS #LPS #M&A