Global M&A Activity on the Rise Again in the Cannabis Sector

USA News Group  -With a new administration in place, Senate Majority Leader Chuck Schumer has expressed that his branch of government will “move forward” on marijuana legalization, whether the President agrees or not. In advance of this, larger multistate operators (MSOs) and multinational cannabis corporations are raising money once again for a strategic advance towards increased M&A activity. The market is already bracing for the much anticipated merger of Aphria Inc. (NASDAQ:APHA) (TSX:APHA) and Tilray, Inc. (NASDAQ:TLRY) to become the world’s largest global cannabis company by sales. Meanwhile, Sundial Growers (NASDAQ:SNDL) is gaining attention for being in a “transition phase” due to M&A potential, and IM Cannabis Corp. (NASDAQ:IMCC) (CSE:IMCC) recently made headlines with its announced acquisition of MYM Nutraceuticals (OTCQB:MYMMF) (CSE:MYM).

Key to IMCC’s latest deal was the addition of MYM’s wholly-owned subsidiary Highland Growth, based out of Nova Scotia, Canada. According to internal company estimates, Highland Grow is expected to generate net revenue of C$29 million and C$38 million and gross margins of 34% to 36% in 2021 and 2022, respectively.

The addition of Highland Growth’s net revenue provides a significant boost over IMCC’s last reported financials during the 3 months ended September 30, 202, which posted a net income of C$738,000 and a 9-month consolidated revenue of C$11 million. For a more detailed look at IMCC in the leadup to the deal, an in-dept report has been published here.

“Acquiring MYM is consistent with IMC’s focus on premium and super premium segments of the cannabis market for consumers and patients in all markets,” said Oren Shuster, CEO, IMC. “With coast-to-coast distribution, including a strong leadership position in Eastern Canada, Highland Grow will further enhance our distribution capabilities and fast-track our entrance into new markets.”

Prior to the deal, MYM had successfully garnered distribution deals in all provinces and territories of Canada, excluding Quebec where the main operations for its other cultivation subsidiary SublimeCulture resides. Back in February, MYM announced it had entered the lucrative Ontario market, and had secured an increased loan facility to support the company’s growth ambitions.

“Entering the Ontario market is another key milestone for our Company,” said Michael Wiener upon the Ontario announcement. “We’ve come a long way at MYM, and we are building incredible momentum. With the additional funds from our senior lender, we are well positioned to continue to build upon and accelerate our growth.”

As per the deal, MYM Nutraceuticals (OTCQB:MYMMF) (CSE:MYM) shareholders are set to receive 0.022 shares of IM Cannabis Corp. (NASDAQ:IMCC) (CSE:IMCC) for each of their MYM shares, representing a price of C$0.195 based on respective closing prices on March 31, 2021. Further details on IMCC’s value ahead of the deal can be found in a recently published research report.

In a much larger deal also involving the province of Ontario, Leaminton, Ontariobased Aphria Inc. (NASDAQ:APHA) (TSX:APHA) and Nanaimo, BC-based Tilray, Inc. (NASDAQ:TLRY) are expected to finalize their mega-merger in the coming months.

Industry analysts are already picking apart the details of the merger, which is expected to result in the world’s largest cannabis company by sales. Tilray is set to hold a shareholder meeting on April 14 to vote on the proposed merger.

According to the recent proxy filing on March 12 by Tilray (page 1), Aphria shareholders will end up owning 62.1% of the combined company after receiving 0.8381 shares of TLRY stock for every APHA stock they own. However since there are more APHA shares outstanding, the total amount of shares TLRY shares given to APHA owners will be larger than by 63% (62%/38%).

Both Aphria’s and Tilray’s boards have unanimously determined that the arrangement is in the best interests of their respective shareholders.

As the M&A activity ramps up, eyes have turned towards Sundial Growers (NASDAQ:SNDL) which as of mid-March had reported its unrestricted cash reserves to be C$610 million, with an additional +C$110 million raised from a warrant exchange shortly afterward.

Now the market is poised to see what Sundial does next, as there are plenty of companies that the popular cannabis firm could purchase outright at this very moment, including what some analysts say could even be IM Cannabis (NASDAQ:IMCC).

Sundial also recently announced on March 18, 2021 that it would issue an additional $800 million in SNDL stock. Having recently beaten the estimates of analysts for Q4 2020 sales,

According to Cantor Fitzgerald analyst Pablo Zuanic, Sundial “is in a transition phase”, citing ongoing cost cutting efforts and a “regearing” of its cultivation facilities.

“Most importantly, the company now sits on C$700Mn of cash and will look to M&A both in the domestic and elsewhere,” said Zuanic.

Currently there is speculation that when the company lifted its cash position at the end of February it now remains ripe for an M&A play.

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