M&A to Win in Cannabis

Many Canadian LPs (and MSOs) deserve a bad rap for burning through capital and shareholder value on bad M&A transactions.  

But not the #2 market player, Organigram (OGI).  Before we get to them, some context is in order.  

M&A challenges are not unique to cannabis. Academic research shows that at least 80% of all transactions fail to build shareholder value. Not only that, they consume scarce capital, complicate share structures and eat up a lot of management time.  

If doing one deal well is a challenge, imagine how hard it is stringing together multiple successes.

Nevertheless, the current market has numerous M&A opportunities ripe for the picking.   

I’ve been close to many cannabis and non-cannabis transactions, both on the buy and sell side. To win in M&A, a company requires 4 strategic competencies:

1. Finding an accretive target that makes strategic sense

2. Doing proper due diligence

3. Negotiating and structuring a good financial deal

4. Integrating quickly to capture cost savings, synergies and accretive revenue.  

Organigram excels at all 4.  In fact, I put them at the top of cannabis M&A leaderboard.

Their ‘secret sauce’ includes-  

--> Looking only at strategic opportunities

OGI only considers transactions that are complementary to their core business & capabilities and aligned to their corporate strategy.    For example, their Laurentian was a three-bagger acquisition:  i) gained a foothold in the tough to enter Quebec market, ii)  added craft flower capabilities and; iii) vaulted them to global market leadership in hash.

--> Proceeding methodically

Management won’t make deals just to buy share or because the price is right. They do their strategic and due diligence homework to ensure there is an accretive and complementary aspect to the acquisition – and zero cannibalization of their core business

--> Prioritizing post acquisition integration 

Time is money.  OGI focuses on quickly driving ROI-critical cost savings through rationalizing and centralizing redundant operations & functions.  

The marketing team goes one step further by pruning the overall product portfolio to eliminate duplication and underperforming products, as well as to safeguard retail listings and hard-earned consumer loyalty.   

“Everything that we’ve consummated, including the transformational financings with BAT, the full acquisitions and the strategic portfolio investments with commercial add-ons, have been with a view of developing long-term competitive advantages that will serve us well not only domestically but also internationally as markets unlock either medically or recreationally.” says Paolo De Luca, Chief Strategy Officer, Organigram. 

M&A is not easy.  But if you get the pre and post transaction process right, M&A can become a flywheel of profitable, strategic revenue.

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