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CAPITAL RAISES
Capital raise activity is light heading in to 2020 with 7 deals to begin the year compared to 15 to start last year. However, the average deal size in this year’s period is more than 2.5x the same period for last year.
Asset-backed debt remains a popular form of financing as exemplified by Subversive Capital raising $200 million to finance real estate. Sale leasebacks will likely remain a popular option for established companies to raise operating capital.
Existing operators continue to raise capital to build out infrastructure in order to cultivate with the scale required to compete in today's market.
MERGERS & ACQUISITIONS
The decline in M&A transactional activity we reported on throughout 2019 continued in 2020, with only 1 reported deal this period vs. 12 for the same period in 2019.
The long awaited acquisition of Origin House by Cresco was completed in Week 2, although at a reduced valuation to what was originally agreed upon. Deals are mostly being cancelled or reworked as the cannabis industry continues to recalibrate to more reasonable valuations.
We expect 2020 to see more merger activity than acquisitions, as consolidation remains necessary to drive scale, efficiency and profitability. However, cash remains tight. Cannabis industry acquisitions have evolved from a land grab mentality to one focused on accretive financials and operational efficiency.