Cannabis’ Winners Take All’ Economy
Virtually every industry eventually consolidates, Many cannabis firms want to be one of these consolidators, either through organic growth or M&A.
They will need to think strategically beyond capacity, product and in most markets, licenses. Right now, these are relatively plentiful and inexpensive.
Three things that matter a lot more for medium-term competitiveness – expertise, key partnerships and capital – are pricey and in short supply. Whoever can leverage and sustain these drivers will be winners, not to mention help make them ideal acquisition targets. Not surprisingly, picky cannabis & non-cannabis suitors will be looking for market and operational leaders.
1. Capital
Today’s high interest rates coupled with investor risk aversion will push high quality/lowest cost capital to a select group of companies that have a good growth story, strong cash flows, healthy margins, senior exchange listings and strategic moats (e.g., brands, IP).
Currently, there are only a handful of businesses that are slam dunks to attract blue chip institutional capital, assuming SAFER and Rescheduling passes.
2. Expertise
Strong market growth coupled with industry bloodletting has created talent gaps right across the sector. These gaps combined with poor corporate cultures are turning into significant headwinds for growth-focused companies looking to scale.
Healthy, professional weed firms will be in the best position to attract and keep talent at all levels, not to mention train the next cadre of cannabis management.
3. Partnerships
Fact is, there are only so many high-quality business partners to go around. Firms will have a hard time achieving their financial objectives if they are working with B-level suppliers, regardless of their non-cannabis heritage. Our sector is too complicated for amateurs.
Winning producers already partner with the best industry bankers, suppliers (e.g., genetics, IR & PR), wholesalers, recruiters and professional services firms. Fair warning: the best service providers undertake their own due diligence and only deal with cannabis firms who are funded, compliant and pay their bills.
It’s not possible here to list every ‘to-do’ needed to become a ‘winner’. Most businesses should begin with the basics such as getting their financial house in order (e.g., improved reporting & governance, fixing the balance sheet), upping their operational game (e.g., leveraging data, driving down costs, aligning supply with demand), and rebuilding employee engagement including defining a compelling employee value proposition and training their teams.
#M&A #strategy #partnerships #funding #capitalmarkets