News hit the wire on Wednesday that another large transaction in the cannabis industry has been cancelled. Green Growth Brands’ acquisition of Moxie, which was originally announced back in July for $310 million (link), was terminated “as the market adjusts to the changing macro environment” per the press release. (link)
I have written before about binding cannabis deals being repriced (link), a trend that itself is unusual for mergers & acquisitions. Mutual termination of binding transactions, something that the cannabis industry has seen lately, is similarly atypical of M&A in other industries. One interesting point about this particular announcement is that “no break fee is to be paid in connection with this termination,” per the press release, although Green Growth will reimburse Moxie’s fees and pay back an advance. In other words, the parties are going to make whole, but nothing more.
Notably, the purchase agreement signed by the parties back in July (publicly filed and available on SEDAR, the Canadian public reporting system (link)) did provide for payment of breakup fees by either party for failure to close under certain circumstances. Since this did not happen, it suggests that the decision to terminate was indeed mutual and negotiated.
This report is another data point evidencing the current turmoil in dealmaking in the cannabis industry, driven by the decline in valuations, the extended period of time needed to close on transactions (due primarily to antitrust clearance delays, as well as state and local regulatory needs), and the recent equity capital market squeeze. Deals that made sense in early 2019 have become more challenging over time and the industry has come to realize that, for better and for worse.