Summary List PlacementThe US cannabis industry is set for a flurry of deals as Democrats on Capitol Hill make cannabis reform a core issue and new state markets open.
Insider spoke with top executives at seven of the largest cannabis companies. They said that they’ll be focused on expanding their footprints as new state markets open up. They also said they’d use deals to scoop up valuable intellectual property as they jockey for control of the lucrative US market.
And there is another battle looming: Canadian companies like Canopy Growth, Aurora, Tilray, and Aphria, are all preparing to enter the US market as soon as they can, encroaching on US firms like Green Thumb Industries and Curaleaf.
“These businesses, ours included, are going to become very big and very well-capitalized.” Ben Kovler, the CEO of US cannabis company Green Thumb Industries (GTI) told Insider.
In the US, cannabis is legal in 15 states for recreational purposes and in 36 states for medical use. Cowen analyst Vivien Azer has projected that the legal US cannabis industry could balloon to a $100 billion market by 2030, and companies are working hard to ensure that they’ll win a slice of that.
Canadian cannabis companies are limited in how they operate in the US because THC is considered a Schedule I drug by the US federal government. However, Canadian companies have the advantage of listing on major US exchanges and can access deeper-pocketed investors, unlike their US counterparts.
Cannabis companies raised over $1.4 billion in January
Cannabis companies globally raised $1.4 billion in January alone, providing fuel for acquisitions, according to Viridian Capital Advisors.
Senate Majority Leader Chuck Schumer, along with other top Democrats, pledged to pursue cannabis reform this year, though it’s not clear whether that legislation will end up being a narrow bill that opens up more access to banks and capital markets, federal decriminalization, or full-scale legalization.
Kovler said that New Jersey — which legalized cannabis on Monday — is a priority market for his firm and added that the Northeast provides attractive growth prospects.
Boris Jordan, the president of Curaleaf, echoed Kovler’s emphasis on the Northeast. Curaleaf is the largest cannabis company by market value in the US and has a footprint in legal states across the country. Jordan said the company is looking to increase its capacity to serve New Jersey and New York if, or when, the Empire State legalizes cannabis.
Norman Birenbaum, New York’s director of cannabis programs, told Insider that he’s working to get a cannabis legalization bill approved through the state’s budget, which is due April 1.
Curaleaf recently raised $300 million to fuel growth in New York, and Jordan said that he’s hopeful that Connecticut and Pennsylvania will follow suit and establish recreational cannabis markets.
He also said he expects to do “tuck in” acquisitions to increase its presence in states like Arizona and Massachusetts where it operates.
Expanding footprints in the US and around the world
Curaleaf isn’t only focused on the US. Jordan said the company has established an office in Tel Aviv to look at deals in the burgeoning Israeli and European cannabis markets.
“I’m not saying anything is going to happen imminently, but we’re in a position where we could at least start to look,” Jordan said.
Jen Drake, the COO of US cannabis firm Ayr Wellness, told Insider her focus is on integrating the seven acquisitions across five states the company has made over the past few months.
Drake said that Ayr hopes to enter another three to five states, and she added she’s carefully watching how New York’s cannabis program develops, as well as other states that are weighing cannabis legalization this year.
Raymond Chang, CEO of the newly public hydroponics company Agrify, said he expects to see lots of consolidation in the cannabis industry, even among the largest US and Canadian firms.
Agrify is an ag-tech company that helps cannabis companies grow their crop more efficiently. Chang said he expects to look at deals that will spur vertical integration, such as adding equipment for the post-production process, which includes steps like packaging, drying, and curing.
He added that he’s actively looking at technology like plant genetics, cloning, biosecurity, more efficient LED lighting systems. Agrify raised $75 million through a stock sale in February.
Canadian cannabis CEOs say they have some advantages over their US counterparts
Miguel Martin, the CEO of Aurora, says that although US companies have expanded in the aftermath of the elections, Canadian companies still do have an advantage — they have the ability to comply with complex federal regulations.
Martin said that he expects more consumer and pharmaceutical companies will invest in cannabis, similar to beermaker Constellation Brands taking an equity stake in Canopy Growth and tobacco giant Altria investing in Canadian cannabis firm Cronos Group.
Jazz Pharmaceuticals recently agreed to acquire US cannabinoid drugmaker GW Pharma in a $7.2 billion deal in early February.
Canopy Growth has a deal to acquire US cannabis company Acreage Holdings when that’s legally permissible. It also has a stake in TerrAscend, a US cannabis retailer. CEO David Klein said he doesn’t foresee any big-ticket mergers in Canopy’s near future, but added that the company will keep capital on the balance sheet for the “right sorts of transactions.”
“I’m not saying there’s anything in our sights right now, but we’ll be prepared to act when the time is right for us,” Klein said, adding that he’s “always fielding phone calls” from startups and other companies with potentially valuable intellectual property.
Klein added that he expects more consolidation in the industry.
“I expect there will continue to be more M&A until it becomes a little more apparent who’s going to win and what the winning strategy looks like,” Klein said.
For his part, Aphria CEO Irwin Simon said the company plans to get a foothold in the US as soon as it’s able. The company recently agreed to merge with Tilray in a $4 billion deal. Aphria also recently purchased the Atlanta-based beer company SweetWater Brewing Co., known for its marijuana-themed 420 Extra Pale Ale, in a bid to get a foothold in the US.
Simon said he’s eyeing some US cannabis companies as potential acquisition targets once it’s permissible to do so.
“I think there’s some great acquisitions in the US, MSOs that if I could buy today, I would love to do that,” he told Insider.
That’s not to say Aphria is going to sit and just wait for legalization to happen in the US.
“We’re going to be progressive and look to expand on a global basis but what I want to say is, whenever legalization does happen in the US, we’ll be ready to go,” Simon said. “And hopefully we’re going to be known as a player that will come into the market and has a lot to bring.”
In the meantime, Simon says he’s focused on capturing as much of the Canadian market as possible and continuing to expand in Europe and Israel.
“We’re making sure we put our tentacles in a lot of different places,” he said.Join the conversation about this story » NOW WATCH: July 15 is Tax Day — here’s what it’s like to do your own taxes for the very first time