Mergers expected as Canada legal pot market unfolds
Canada is set to detail its plans for legalized recreational marijuana, with the industry expecting a rush of mergers as companies seek a national footprint amid a patchwork of different rules in each province.
Prime Minister Justin Trudeau’s government will unveil its proposed law as early as this week but is likely to leave many facets — potentially including distribution and the legal age — up to individual provinces, as recommended by a federal panel. That suggests Canada’s pot market could be similar to its ad hoc system of restrictions on the sale and shipment of alcohol.
The development may spark further consolidation as companies seek to expand their geographic footprint as the shape of the market becomes clear. Shares of marijuana companies like Canopy Growth Corp. have surged more than fourfold over the past 12 months amid investor optimism over recreational sales, which Canaccord Genuity Group Inc. said in November could reach C$6 billion ($4.5 billion) annually by 2021. Pot entrepreneurs have also turned to Canadian equity markets to raise funds for U.S. operations.
“There will be some M&A activity,” said Cam Battley, executive vice president of Aurora Cannabis Inc., a licensed marijuana producer in Alberta. “I think you anticipate there will be rapid building of capacity.”
That will come as the government warns of a long road ahead developing regulations with provinces and cities once it introduces its proposed legislation. “There’s a clear recognition we’ve got a lot of work to do,” Bill Blair, the federal lawmaker and former police chief leading Trudeau’s legalization effort, said in an interview. Both he and Bardish Chagger, the government house leader, declined to comment on if the law would come this week, the last before a two-week parliamentary break. The Canadian Broadcasting Corp. reported Monday the law would be unveiled Thursday.
Companies may seek acquisitions across multiple provinces to hedge against the risk jurisdictions will implement the legislation in different ways or at different times, according to Daniel Pearlstein, a research analyst at Toronto-based brokerage Eight Capital. The rollout will take time as provinces still need to decide how marijuana will be distributed, he said, noting municipalities may have oversight of licensed storefronts.
Smith Falls, Ontario-based Canopy, the first Canadian company with a market value of C$1 billion — making it a marijuana unicorn — announced last week it will expand west by acquiring closely held rTrees Producers Ltd. in Yorkton, Saskatchewan.
Aurora Cannabis, which has a production facility north of Calgary and is building an 800,000-square-foot facility at the Edmonton International Airport, acquired Peloton Pharmaceuticals Inc., a late-stage marijuana producer applicant in Montreal.