M&A Basics For Cannabis & Hemp Companies: A Company Owner’s Guide to Key Deal Elements & Common Practices of Mergers & Acquisitions

This book presents more than two dozen chapters to help you navigate the cannabis and hemp mergers and acquisitions (M&A) process. The authors have a bias for the "sell side" of M&A (advising companies that are offering themselves for acquisition), and in this book they cover the basics of preparing a company for that acquisition process. But the business principles covered here are just as applicable if you are an acquirer. (The authors have advised acquirers as well). So, there is something within these pages for every aspect of the industry. In these chapters, the authors outline how to position a company for the highest possible value, and lay out what you can expect during the entire arc of the acquisitions and due-diligence processes. Mergers and acquisitions activity in the cannabis and hemp sector is the most-active it has ever been, and it will only get hotter with each passing month. The drivers of such intense activity - and the reasons for today's strong company valuations - are broadcast with headlines in every major news outlet in North America: It's the broad (and growing) legalization of cannabis and hemp products. For hemp in the U.S., the 2018 Farm Bill legalized hemp throughout all 50 states for the first time. For cannabis, the legalization has been rolling across the land on a state-by-state basis. As this book is headed to the printer, in early 2019, eleven U.S. states have legalized both medical and recreational marijuana. Twenty two additional states have legalized medical marijuana. In total, 32 states and the District of Columbia have some form of legalized marijuana. Other states will soon follow. And then there's Canada, where the legalization has been on a national scale. The estimated size of just the Canadian marijuana market ranges between $4 and $6 billion U.S. dollars for 2019. What's equally remarkable about the cannabis and hemp sectors is the company valuations that are being achieved in mergers and acquisitions activity. But take note of something interesting: Even as cannabis and hemp products are coming out of the shadows of illegality, the metrics by which these companies are values are actually very traditional. Indeed, they are the same metrics that have been used for decades to establish the values of other companies, entirely unrelated to cannabis and hemp. Such performance metrics as gross profit margins, EBITDA, OPEX, and COGs are all used in the cannabis and hemp sector, just as they are in other industries. That said, there is something unusual about the cannabis and hemp sectors, and that's high valuations achieved in the sales of these companies. Those valuations (the total enterprise values paid to acquire companies) are being paid not just on historical company performance; instead, there is often a premium paid for the expected growth in cannabis and hemp markets. That growth is not limited just to retail operations that are marketing cannabis and hemp products, but in other areas as well, such as laboratory and compliance testing services, regulatory compliance equipment, and infrastructure for farming operations needed to grow and process cannabis and hemp at industrial scales. When you recognize that the 2018 market size for cannabis and hemp in Nevada alone was $615 million, and that Oregon was $650 million, and that Colorado was $1.7 billion, you don't need an MBA from the Harvard Business School to recognize that these large-volume industries need support services of a magnitude we have historically seen in "big pharma." That's true whether services are focused on product creation, product packaging, product transportation, or product testing. So, it's really not a surprise to see cannabis and hemp mergers and acquisition activity spike up the way it is trending now. Read on and learn how to take full advantage of this hot market!