Cannabis Market Moves

Friends – another day, another seismic shift in the industry.  If you haven’t seen it yet this morning, AB InBev announced a strategic deal (US$100mm) with Tilray to develop non-alcoholic THC and CBD beverages up in Canada.

https://www.newcannabisventures.com/tilray-and-ab-inbev-to-invest-up-to-100-million-in-cannabis-beverage-venture/

A few thoughts on this (none of which constitutes legal advice, let alone business advice): 

  • As I’ve said in the past, the Cannabis industry is progressing towards becoming like the wine and beer industries – a handful of large players at the top and lots of small niche-y players at the bottom. 

  • This kind of strategic partnership makes total sense to me.  Successful cannabis companies realize early on that there’s a reason that businesses hire/solicit expertise from other disciplines, both internally (HR/finance/marketing) and externally (outsourcing things like logistics) – not everything can be or should be developed anew.  Why not tap into and leverage the global expertise of a giant, successful alcoholic beverage company to grow and scale?

  • There’s nothing to say that smaller cannabis companies can’t do this either, particularly for the niche-y players who have a specific product/service that isn’t easy to duplicate and can bolt easily onto a larger company.

  • A bit surprising to me that there haven’t been more outright acquisitions of cannabis companies up in Canada.  Yet.  Could be the valuations, while the large beverage/tobacco/pharma companies are waiting for a downturn to snap up non-US companies at a discount with their lower cost of delicious capital.  Could be that their boards are reluctant to dive in whole hog at this early point in the legal cannabis industry’s history.  It’ll be interesting to see what happens over the next 6-12 months with US-based CBD companies and whether CPG companies (healthcare/pharma/neutraceuticals (one of my favorite portmanteaus)) take the same approach of partnership or outright acquisition and integration.

  • It puts more pressure on companies in the US across the size spectrum to figure out their long-term strategy before legalization hits.  Going back to my handy wine/beer industry analogy, the “turf war” (to anonymously quote a friend at a large cannabis company) among the national companies will only continue to accelerate so that there’s enough breadth/market share to be attractive to large beverage/tobacco/pharma, for either strategic partnership or outright acquisition. 

  • I’m guessing that you’ll see more consolidation in the middle market, which, well, there’s plenty of currently.  These are attractive targets for larger companies to quickly acquire licenses and access to local supply chains.  As the cannabis industry morphs over time and becomes less fragmented (see, e.g, the wine/beer market), it’ll be more challenging for middle market companies to distinguish themselves and gain national presence/share/distribution (ibid.).

  • Small companies will have to figure out what they want to be when they grow up, and how they will be able to stand out in a very crowded marketplace.  Walk into any dispensary and already you can see how many products there are that are difficult for the average consumer to distinguish.  Then walk into a wine shop – it’s not that different.  Certainly, in both instances, that’s where the staff adds real value; however, over time, with national players expanding their brand presence, the cannabis market will become much less fragmented than it is right now, and they’ll have better access to national distribution.  So the small company will have to be nimble and specialized – sort of like a cult wine or a craft beer.  Investors in those companies will be asking the same questions that they always have – what’s different about you and how can you scale – but the scale question will need to shift.

  • US-based beverage/tobacco/pharma companies will need to figure out their strategies for when cannabis is legal, and also what they’re going to do about legal hemp-based CBD.  Moves like this InBev deal mean that the larger companies are already figuring out how to position themselves.  Smaller companies can start today to build relationships within the US and do their due diligence to discover whether, if, and how they want to play in the cannabis market.

Excelsior!

Written by: Marc Hauser