Hexo Corp. Chief Executive Officer Charlie Bowman believes that next year will be a busy one for cannabis dealmakers as he expects private equity firms to increasingly wade into the sector to consolidate underperforming companies.
“This industry, if you take a look at the asset values and what the multiples are right now the market caps, private equity could come into this industry and sweep it up very quickly and do a roll-up strategy,” Bowman said in an interview with BNN Bloomberg. “I see that in 2023, more suppliers will go out. I think you’ll see more roll-ups come in, especially from the large licensed producer standpoint.”
While Canada’s cannabis sector hasn’t seen a significant amount of merger and acquisition (M&A) activity this year, with retailers experiencing the bulk of transactions due to the hypercompetitive nature of that part of the industry, legal cannabis producers have frequently filed for creditor protection after being unable to agree to any merger deals. Viridian Capital Partners, a cannabis-focused consultancy, said that M&A volume so far in 2022 is down more than 80 percent, with only US$4.87 billion in consideration and 166 deals closed compared to US$24.7 billion in transaction volume on 302 deals in 2021.
That could change next year if more private equity firms see an opportunity to tackle the high-flying cannabis sector. While the space remains highly regulated and institutional investment remains mostly on the sidelines due to the U.S. federal illegality of the drug, Bowman said that there are aspects of the industry that would appeal to opportunistic private equity firms looking to make a splash in the industry.
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