Whether they will, is of course, another matter.
One thing is always true in a market like this. It all needs lawyers on the way up and it needs lawyers on the way down….
The story is to be found behind a paywall at Canada’s Business Insider
or over at USA Online News
Major Canadian marijuana cultivators, or LPs, are on a deal-making binge.
All that excitement around the industry will create winners and losers, according to a new report from PwC.
The winners, according to the accounting and consulting firm, will have “laser-focused” strategies looking at long-term growth.
The cannabis sector is booming.
Major Canadian marijuana cultivators, known as licensed producers (LPs), have pursued a flurry of deals as excitement around Canada’s legal marijuana market ramps up.
Earlier this week, Constellation Brands, the beer-and-liquor giant behind Corona, poured close to $4 billion into Canopy Growth, the largest publicly traded LP. In May, Aurora — another of Canada’s large LPs — bought a smaller rival, Medreleaf, in a $2.3 billion stock deal, just days after the company closed a $1 billion cash-and-stock acquisition of CanniMed Therapeutics. That’s amid a wave of smaller mergers and acquisitions in the sector.
Though investors are excited about the prospects of cannabis legalization, accounting giant PwC is flashing warning signs: the “deal mania” in the cannabis sector will create some winners, but many more losers.
The winners are going to be the firms that are “laser-focused” on long-term growth, PwC said in its recently-published “Cannabis in Canada” series.
Don’t chase ‘opportunistic events’
PwC said investor fervor has led LP’s to “move in too many directions at once” by boosting the production of marijuana, investing in export markets with ambiguous regulation, and developing new consumer-focused brands for products in which there may not yet be a clear market.
For example, Canadian LPs are rushing to create products like edibles, beverages, and vaporizer oils, though most Canadian provinces have said those products won’t be allowed until the middle of 2019 at the earliest.
“To succeed in this rapidly evolving industry, companies will need to grasp the realities of the marketplace and quickly enact a focused, disciplined plan of attack,” PwC said.
Canadian LPs are all seeking to have the first-mover advantage when new export markets open up. But as governments around the world debate the merits of legal marijuana, it’s likely that some LPs will find themselves ramping up production to meet a demand that doesn’t yet exist — both in Canada, and in export markets — causing prices to drop across the board as both Canadian provinces and other countries deliberate how to implement legalized marijuana.
“The risk here is that too many Canadian LPs are trying to become global corporations before they have established sustainable domestic businesses, opening the door to complications down the road,” PwC said.
On top of that, investors are more closely scrutinizing the financials of publicly traded LPs as valuations soar. Once legalization begins in Canada, consumers will have a range of options, and will likely gravitate towards brands they trust.
“Investors will show little patience for companies that cannot differentiate themselves to win in a crowded market,” PwC said.
To win the market, PwC said LPs should chart a plan to grow sustainability over three-to-five years, rather than targeting “opportunistic events” that could give the stock price a