eResearch | The cannabis industry recently saw heightened activity as the United States moved closer towards federal regulation while several M&A deals were announced. In addition, the cannabis edibles market witnessed a sharp increase as more consumers tried edibles for the first time and companies launched new product lines to meet the demand.
US Moves Closer to Federally Regulating Cannabis
In the United States, individual states continued to implement their own legislation to regulate and tax cannabis sales while they wait on federal legalization. Currently, 15 states and Washington, DC have regulated the legal use of recreational cannabis and 36 states have regulated the legal use of medical cannabis.
New Jersey, Arizona, Montana, and South Dakota are the four newest states to vote and pass regulations for recreational cannabis.
In December, the U.S. House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement (“MORE”) Act, legislation to de-schedule cannabis from the Controlled Substances Act.
The MORE Act also includes the expungement of prior juvenile convictions related to cannabis and the inclusion of a 5% tax on cannabis products to fund criminal and social reform projects.
With Joe Biden winning the presidential election and the Democratic Party gaining control of Congress, it increases the chance of the MORE Act being passed into law. Mr. Biden previously announced support for the federal decriminalization of cannabis while Vice President-elect Kamala Harris previously sponsored a version of the MORE Act in the Senate.
Although the United States is slow to regulate cannabis at the federal level, the majority of Americans can legally purchase cannabis in one of the many states that have put forth regulations themselves.
Cannabis M&A Activity Surges
M&A activity in the cannabis industry recently started to pick up as cannabis companies expanded into new markets through acquisitions or consolidated operations by merging with competitors.
On December 22, 2020, Ayr Strategies (CSE:AYR.A | OTCQX:AYRWF), a U.S. cannabis company, announced a $290 million acquisition of Liberty Health Sciences (CSE: LHS | OTC:LHSIF) and a $101 million acquisition of GSD NJ.
The two acquisitions expanded Ayr Strategies’ cannabis operations to seven states, which include four adult-use recreational markets and three medical markets.
On December 16, 2020, Aphria (TSX:APHA | NASDAQ:APHA) and Tilray (NASDAQ:TLRY), two leading Canadian cannabis companies announced a merger to create the world’s largest cannabis company by revenue. The combined company will operate under the Tilray corporate name and trade on the NASDAQ under the ticker symbol “TLRY”.
On a pro forma basis, the newly combined Tilray will have an equity value of C$5 billion and revenue of C$874 million over the past twelve months. The merger is also expected to have approximately C$100 million in annual pre-tax cost synergies.
M&A activity is expected to continue as the cannabis market in the United States moves towards federal legalization and the Canadian cannabis market consolidates.
Cannabis Edibles Market
The cannabis edibles market is experiencing high growth as cannabis companies seek higher-margin product offerings while both new and mature consumers try edibles for the first time.
According to ResearchAndMarkets, the global market for cannabis edibles was estimated at $3 billion last year and is forecasted to reach $12 billion by 2027, growing at a CAGR of 22%.
Headset, a cannabis analytics firm, reported that the sales of cannabis edibles across seven US states reached $1.2 billion in 2020, a 60% increase year-over-year. Headset analyzed data from California, Colorado, Massachusetts, Michigan, Nevada, Oregon, and Washington.
In May 2020, (Curaleaf Holdings (CSE:CURA | OTC:CURLF), a US cannabis company, announced the launch of its new cannabis edible product called Nano Gummies. The Nano Gummies are infused with water-soluble cannabinoids through nano-emulsion technology, which increases bioavailability and enables faster absorption.
In November 2020, New Leaf Ventures (CSE:NLV | OTC:NLVVF), a Canadian cannabis company focused on the US markets, announced the launch of a new line of premium infused edibles under the brand name Goodies. The Goodies brand offers two distinct products, the Goodies Buttery Caramels, and the Goodies Hard Candies.
As the demand for alternative cannabis products grows, cannabis companies are expected to increase investments in research and development for cannabis edibles.
Global Cannabis Market
The global cannabis market is expected to continue expanding as more countries announce regulations for recreational and medical uses of cannabis. The global trend of adopting cannabis regulations was supported by the success of legal North American markets.
According to a report by BDSA and Arcview Market Research, the legal cannabis industry was $15 billion in 2019 and is forecasted to reach $47 billion by 2027, growing at a CAGR of 21%. In 2025, the US cannabis market is projected to represent 72% of the total global cannabis sales.
