Trends in Cannabis M&A 2023

The cannabis industry has experienced an unprecedented surge in recent years, gaining momentum as more states and nations decriminalize or legalize its use. As with any burgeoning sector, mergers and acquisitions (M&A) have been pivotal in determining the market’s landscape, opening doors to consolidation, operational expansion, and strategy realignment.


As companies vie for market dominance and seek innovative ways to stay ahead, M&A activity not only reflects the industry’s growth but also highlights its challenges and opportunities.


As far back as 2021, the cannabis industry witnessed a surge in M&A activity. Riding on the wave of record sales in legal state markets during the pandemic, the industry saw a phenomenal inflow of blockbuster investments. Companies, driven by the allure of this ‘green gold rush,’ embarked on a race to enter new markets, enhance their operational capacities, and snap up novel intellectual property. This resulted in a whopping $17 billion in M&A deal activity just that year.

Economic Headwinds and Dampened Enthusiasm

Yet, like many rapid ascents, the industry soon faced challenges. The subsequent year, 2022, painted a stark contrast with M&A values in North America plummeting to $4 billion. This dip was attributed to many factors, including economic challenges and waning hopes of swift federal action favoring nationwide legalization.


While Canada took the lead by establishing a fully legalized national market, the decentralized approach in the U.S., driven by state-level legalization, represented a unique mosaic. The U.S. market potential dwarfed Canada’s owing to its significantly larger population, leading to a more pronounced M&A activity. Interestingly, the pace of U.S. state-level legalization caused shifts in M&A activity concentration across states.


Amidst this whirlwind of activity, specific names began to make headlines. Cresco Labs and Columbia Care, two industry titans, stood out for their individual operations and an ambitious merger attempt that would have reshaped the industry’s landscape. Announced in March 2022, this $2 billion merger, unfortunately, did not reach fruition, highlighting the underlying complexities and challenges in the M&A realm of the cannabis sector.

Drivers of M&A Activity

Mergers and acquisitions (M&A) are far from arbitrary; they’re propelled by a set of distinct drivers that either catalyze or restrain industry consolidation. The cannabis sector, being nascent yet rapidly evolving, presents its own unique set of influences.

  • Legalization Momentum: At the heart of the M&A surge is the ongoing wave of state-level legalization in the U.S. Each new state that legalizes cannabis presents an untapped market, and companies rush to establish their footprint early, often by acquiring existing businesses. For instance, states like New York and Texas have seen significant increases in their share of M&A activity stemming directly from legislative changes.
  • Operational Capacities and Expansion: With new territories come the challenges of production, distribution, and retail. Companies aim to ramp up their operational capacities swiftly, and M&As provide a strategic shortcut. Instead of building from scratch, companies find it time-efficient to acquire or merge with established entities with the infrastructure.
  • Intellectual Property: The cannabis sector isn’t just about cultivation and sales. There’s a burgeoning niche of innovations, from extraction techniques to edible formulations. M&As allow companies to get hold of these novel intellectual properties, driving a competitive edge in the market.
  • Economic Considerations: The fluctuations in M&A activity can also be attributed to broader economic forces. As witnessed in 2022, economic headwinds can dampen enthusiasm, leading to a decline in deal activities. Companies become more cautious, reevaluating the financial viability of potential mergers or acquisitions.
  • Regulatory Challenges: As the Cresco Labs and Columbia Care merger illustrates, regulatory approval remains a significant hurdle. Companies must often navigate intricate compliance issues, particularly in states with limited licenses. This often means divesting from certain assets or restructuring business models, which can deter or complicate potential M&A deals.
  • Strategic Positioning: Beyond immediate gains, companies also look at M&As as a long-term strategy. They provide a chance to diversify portfolios, enter new demographics, or even eliminate competition. The emphasis isn’t just on expansion but also on strengthening core competencies, as highlighted by Cresco Labs’ “Year of the Core” strategy.


In essence, the M&A activity in the cannabis industry is a complex interplay of market opportunities, legislative shifts, economic dynamics, and strategic foresight. Companies continually calibrate their strategies, balancing between aggressive expansion and sustainable growth.

Focus on Sub-segments

The cannabis industry, while often considered a unified entity, is truly a multifaceted ecosystem with varied sub-segments, each with its dynamics and potential.

  • Cultivation and Retail Lead the Way:
    • Why the Buzz? Cultivation and retail have consistently been the dominant sub-segments for M&A activity. The very essence of the cannabis business starts with cultivation—growing the plants—and ends with retail, where the products reach the end consumers.
    • Driving Factors: As more states legalize cannabis, there’s an immediate need to increase cultivation to meet demand and establish retail outlets for consumers. M&A is a rapid means for companies to achieve this without starting from the ground up.
  • Intellectual Property and Innovation:
    • Beyond the Plant: The cannabis industry is not just about selling the plant or its direct extracts. It encompasses various products, including edibles, tinctures, vapes, and topicals. Companies with innovative products or extraction techniques have become prime targets for acquisitions.
    • Strategic Acquisitions: The goal here is to acquire proprietary techniques that give competitive advantages and tap into niche consumer segments attracted to specialized products.
  • Distribution and Logistics:
    • The Middlemen Rise: Once cultivation is done, the product needs to reach various retailers or medical dispensaries. Companies with streamlined distribution networks or logistic capabilities can save costs and time, making them attractive M&A targets.
    • State Regulations: In some states, regulations around cannabis distribution are strict, giving licensed distributors a significant advantage and making them prime M&A candidates.
  • Ancillary Services and Technology:
    • Beyond the Green: The cannabis industry also comprises various ancillary services, from marketing firms specializing in cannabis to technology platforms that offer seed-to-sale tracking. As the industry matures, these services play a pivotal role in its growth and are gaining M&A traction.
    • Tech Integration: Technology platforms aid in compliance, sales tracking, and customer management. Acquiring or merging with tech firms can provide cannabis companies with enhanced oversight and improved customer experience.
  • Branding and Consumer Experience:
    • The Branding Race: Branding becomes crucial as the market becomes more saturated. Companies with solid brand identities or unique consumer experiences become attractive for M&As, as others seek to leverage their brand value.
    • Consumer Loyalty: Acquiring a company with a loyal consumer base can provide an immediate market share boost. It’s not just about the product but the entire consumer experience, from packaging to in-store interactions.

Implications for the Future

The rapid growth and constantly shifting dynamics of the cannabis industry have made Mergers and Acquisitions (M&As) both an exciting opportunity and a daunting challenge for businesses. The past trends and case studies provide insights into the future implications of the cannabis M&A landscape.

  • Increasing Scrutiny & Regulatory Hurdles:
    • As the cannabis industry matures, we can expect even more rigorous regulatory scrutiny. This can make M&As more complex, with businesses needing a deep understanding of state-specific regulations and licensing intricacies.
    • The Cresco Labs and Columbia Care case demonstrates the challenges of regulatory approval processes, especially when operations overlap in limited-license states.
  • Selective Expansion and Strategic Partnerships:
    • With state-level legalizations on the rise, cannabis companies will be more strategic in their expansion efforts. They’ll seek to merge or acquire businesses in states with promising growth potential and regulatory landscapes conducive to business.
    • Partnerships with non-cannabis entities, such as the proposed deal with Sean “Diddy” Combs, might become more frequent as businesses aim to diversify and tap into wider audiences.
  • Operational Resilience & Adaptability:
    • As evidenced by the shifting trends in M&A activities, companies must demonstrate resilience and flexibility. They should be prepared to change courses, restructure, or reconsider M&A deals based on market dynamics and economic pressures.
    • Businesses that focus on core strengths, operational efficiencies, and restructuring of low-margin operations, as seen with Cresco Labs, will be better poised to thrive amid industry fluctuations.
  • Continued Interest in Cultivation and Retail:
    • The focus on cultivation and retail is not expected to wane anytime soon. As more states legalize cannabis, there will be a continuous need for cultivation facilities to meet demand and retail outlets to facilitate sales. M&A activities in these sectors will remain robust.
  • Globalization of the Cannabis Market:
    • As more countries around the world move towards cannabis legalization, there is potential for M&A activities to take a more global turn. U.S. companies might look beyond national borders to tap into emerging international markets.

Adaptability Required in Cannabis

Businesses and investors alike should remain alert, adaptive, and open to the myriad of possibilities the future holds. The cannabis industry, still in its budding stages, has already proven to be a dynamic and transformative force within the global market.


From the record-breaking M&A deals of 2021 to the more conservative, strategic moves seen in 2022, we’ve observed the industry’s adaptive response to external pressures and internal growth ambitions.

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