News hit the wires this week that a large, public multinational manufacturer and distributor of building products, Gibraltar Industries, has purchased a manufacturer of cannabis extraction and related equipment, Delta Separations. (link) This transaction is notable to me for a number of reasons:
- Although Gibraltar has previously made an investment in another extraction equipment company, according to the press release, Gibraltar is not a cannabis business. This investment is apparently related to Gibraltar’s greenhouse products, but generally represents another example of a non-cannabis industry company making inroads on an ancillary basis into the marketplace. The integration of cannabis into broader US industries, in my opinion, can only be a positive.
- The purchase was reportedly made for $50 million cash, highlighting the fact that, while cannabis industry operators are cash-constrained and direct access to equity capital is currently difficult at best, other industries do not have that problem.
- The price was reportedly based on 2019 revenues of $46 million, resulting in about a 1x revenue multiple for the purchase. Although valuation multiples remain hard to pin down, and this is a hard asset ancillary play (as opposed to, say, buying a licensed cannabis operator), that is a relatively conservative acquisition multiple relative to what we all saw in 2018 and 2019.
A single data point does not make a trend, but perhaps this is a small sign that the cannabis industry is adapting to the current environment.