Friends, by now, you’ve likely seen the news that Canadian LPs Tilray and Aphria are merging. (link) It’s been a long while since the industry has seen a blockbuster merger like this, certainly one that (per the press release) creates one of the largest cannabis companies in the world.
What comes to my mind is the question of whether this augurs a wave of consolidation in the coming year. Certainly we’re seeing a return to stronger valuations and renewed confidence (link), even with diminished prospects of US legalization (link, although, who knows what’ll happen in the Georgia runoffs on January 5th). US MSOs have been expanding their footprint as of late with tuck-in/bolt-on acquisitions (generally, a larger company acquiring and integrating a smaller one), but we haven’t seen a large US merger for a while.
Two reasons that could change, in my opinion. First, these mergers tend to be stock-for-stock swaps (I’m generalizing here), meaning that the shareholders of one company exchange their stock of the other company at a specific ratio. With public stock prices firming up across the board, stock-for-stock deals look more attractive (or, at least, not as unattractive).
Second, you may have seen the news that U.S. Attorney General William Barr is resigning and leaving the U.S. Justice Department within the next week or so. (link) Recall this summer the report that Barr was allegedly using his power to hold up Hart-Scott-Rodino antitrust review for a number of very large cannabis industry acquisitions from 2019 (link), delays that wreaked havoc causing deals to be repriced and, in many cases, cancelled. (link) With his departure and a Democratic White House appointing the next Attorney General, we’re hopefully going to see cannabis deals be treated in antitrust review on equal footing, without the (alleged) taint of politics, removing a major bar (pun very much intended) that was stifling large deal activity with cost and uncertainty.
As a deal lawyer, I, for one, am excited.