The legal marijuana industry is budding before our eyes, with the biggest achievement in its existence coming this past Wednesday when recreational cannabis was officially legalized. Depending on the province, adults age 18 or 19 and over are free to purchase up to 30 grams of dried flower.
Now that adult-use weed is legal, Wall Street is looking for the industry to generate somewhere in the neighborhood of $5 billion in added annual sales when fully up to speed. This expected surge in sales and the potential for big profits is what has sent investors piling into pot stocks since the beginning of 2016. In many instances, the world's largest marijuana stocks by market cap have seen their share prices catapult higher by more than 1,000% since 2016 began.
But it's not just investors who are interested in marijuana stocks. The prospect of gobbling up market share has coerced a lot of dealmaking within the cannabis space in recent months. In fact, all of the largest marijuana deals in history have occurred since March. Listed in ascending order, here are the six biggest deals ever in the pot industry.
5. and 6. (Tie.) Canopy Growth Corp. buys Ebbu Hemp for $325 million and Aphria buys Nuuvera for $325 million
The fifth- and sixth-largest deals of all time are tied at 425 million Canadian dollars ($325 million) apiece.
The first deal, which closed back in March, involved Aphria (NASDAQOTH:APHQF) acquiring Nuuvera. This highly criticized acquisition, which was considerably larger when first announced, wound up shrinking to just $325 million because of the small cash component and high share component attached to the deal (Aphria's stock struggled during the first half of the year). Interestingly, Nuuvera didn't increase Aphria's peak production potential, which is what most growers have been after when making acquisitions.
Instead, Aphria essentially acquired Nuuvera's international infrastructure, giving it access to around a dozen foreign markets. These foreign channels should prove important in selling domestic oversupply in 2020 and beyond.
Then just days ago, Canopy Growth Corp. (NYSE:CGC) announced that it was acquiring U.S.-based hemp producer Ebbu Hemp for $325 million. This includes a small cash component of CA$25 million and the remainder in shares of Canopy's common stock.
The market is really excited about this particular deal, given that Canopy Growth is moving into the somewhat cloudy, but potentially lucrative, U.S. market. However, with the outlook on hemp brightening in the U.S., it looks like a logical use of Canopy Growth's massive cash pile. Hemp is generally rich in cannabidiol, the cannabinoid best known for its perceived medical benefits.
Considering that the Canopy Growth deal to buy Ebbu contains a large share-based component and it's not yet closed, this tie for fifth will likely be broken one way or another very soon.
4. MedMen Enterprises acquires PharmaCann for $682 million
The largest U.S.-based acquisition in history was announced just nine days ago by niche retailer MedMen Enterprises (NASDAQOTH:MMNFF). MedMen agreed to buy privately held retailer and grower PharmaCann in an all-stock deal valued at $682 million.
The deal is expected to complement MedMen's addressable U.S. market, as well as quickly facilitate its strategy of expanding its retail and grow-site footprint. Since the U.S. federal government doesn't allow cannabis to be transported between states, MedMen's acquisition will quickly add eight cultivation facilities in seven states -- and it previously had no presence in six of them. Plus, it picks up 18 retail locations and new sales licenses. In other words, with MedMen aiming to establish its retail locations as the go-to cannabis experience, this transaction makes a lot of sense.
Keep in mind that MedMen is a busy bee in the expansion department, and opening new locations won't come cheaply or happen overnight. With that being said, expect the company to continue reporting losses despite rapid revenue growth for the immediate future.
3. Aurora Cannabis purchases CanniMed Therapeutics for $852 million
The first truly massive deal in the cannabis space went to Aurora Cannabis (NYSE:ACB), which, in May, completed its $852 million acquisition (about CA$1.1 billion) of Saskatchewan-based CanniMed Therapeutics.
In November of last year, when Aurora first proposed purchasing CanniMed, it looked as if a deal was a long way off. CanniMed's board was clearly opposed to the combination, fearing that Aurora wouldn't support production in Saskatchewan, and the board believed that CanniMed was being grossly undervalued, based on Aurora's initial offer. Of course, a pledge to keep production ongoing in Saskatchewan, along with a 181% premium relative to its mid-November price before the bargaining began, proved enough to sway CanniMed's board.
What did Aurora get for its purchase? Aside from a boost in registered medical patients and a lift in dried flower production, CanniMed brings high-margin cannabis oil production to the table. CanniMed had already been working on a facility capable of 720,000 liters of annual oil production, and Aurora could very much use this output to meet its focus on the medical community both domestically and abroad.
2. Aurora Cannabis acquires MedReleaf for $2.5 billion
Interestingly enough, Aurora Cannabis, at one time, occupied the top two marijuana deals in history. In July, it completed its purchase of Ontario-based MedReleaf in an all-stock deal valued at $2.5 billion.
Why MedReleaf? The simple answer is that it helped Aurora Cannabis quickly boost its peak production potential. Expansion at MedReleaf's Bradford facility will lift annual output to around 35,000 kilograms. But it was MedReleaf's acquisition of 164 acres of land that really did the trick.
This land contained the Exeter facility, which was being used to grow vegetables. This existing greenhouse is being retrofitted to grow cannabis. When complete, it could yield 105,000 kilograms a year. That's 140,000 kilograms of annual peak production potential that Aurora was able to gobble up, pushing its own peak capability to around 570,000 kilograms of weed a year.
MedReleaf also has been very focused on high-quality strains and cannabis oils. As noted, Aurora has a focus on the medical community domestically and abroad. With less chance of commoditization -- albeit medical patients represent a smaller consumer pool than the recreational market -- Aurora's focus on medical marijuana patients and alternative consumption options like oils should translate into higher operating margins. Thus, the acquisition complemented Aurora's existing strategy nicely, even if it was exceptionally pricy and dilutive to its shareholders.
1. Constellation Brands takes equity stake in Canopy Growth for $3.8 billion
However, the biggest deal in marijuana history goes to Modelo and Corona beer-maker Constellation Brands (NYSE:STZ), which announced on Aug. 15, 2018 that it was acquiring approximately 104.5 million shares of Canopy Growth for $3.8 billion -- a more than 50% premium to Canopy's closing price on August 14. This deal boosts Constellation's stake in Canopy to 38%.
Most investors may not realize that this is Constellation Brands' third such investment in Canopy Growth. Back in October 2017, Constellation took a 9.9% equity stake in the company for around $190 million. This investment has appreciated many times over since October.
Then in June, Constellation purchased a third of Canopy Growth's CA$600 million convertible note offering. Convertible notes can, as the name implies, be converted into common stock if the noteholder chooses. Along with the 139.7 million warrants Constellation also received with its latest deal, it has the opportunity to increase its stake in Canopy to beyond 50%.
The reason Constellation Brands has been so aggressive is simple: alcohol sales are sluggish in North America. The ability to work with Canopy Growth to develop new alternative products, including nonalcoholic cannabidiol-based beverages, should go a long way to moving the needle for both companies.
However, Constellation's more than $4 billion investment in Canopy also offers a pretty clear message that it sees a bright future for legal cannabis. Although a buyout of Canopy is unlikely for at least two years, since Constellation's board keeps a tight lid on its balance-sheet leverage, Constellation Brands may very well gobble up the remainder of Canopy that it doesn't already own in 2021 or soon thereafter.