Cannabis industry merger and acquisition deals have fallen 80 percent from the first quarter of 2019 compared to the first quarter of this year, according to a Viridian Capital Partner analysis outlined by the National Law Review. In Q1 2020, there were just 19 such deals, down from 94 in Q1 last year. The massive drop in M&A deals in the space is largely driven by the coronavirus pandemic, the report suggests.
In March 2020, there were just five M&A deals, compared to 25 in the same month last year, the report says. In all, Viridian tracked just 27 M&A transactions by the end of March, while there were 110 such deals by the end of March last year.
Total value of these deals has also taken a massive hit, adding up to $325 million by the end of March 2020, compared to a whopping $9.2 billion last year. Even if the number of M&A transactions were to rebound over the next six months, it’s unlikely they would reach 2019 marks.
Adam Pope, an associate in the Business Development department of venture capital cannabis firm Canopy Rivers, noted in a May blog post that the pandemic has shifted business pitches to the company from consumer products, production, retail, and distribution to software and technology, noting that 37 percent of pitches to Canopy Rivers have been in the tech sector of the space.
“Broadly, software companies have fared relatively well during the economic downturn, and many ‘pick and shovel’ companies—like Shopify in e-commerce—are helping businesses pivot by offloading cost centers to specialists which can help grow their business. Cannabis software opportunities could potentially be more pervasive post-COVID as they are less capital intensive and could draw more significant investor interest during global macroeconomic uncertainty.” – Pope, How Cannabis Venture Capital is Evolving with COVID-19, May 21
In the U.S., adult-use and medical cannabis businesses – including cannabis adjacent companies like tech – were not eligible for federal aid related to the pandemic, although most hemp businesses were.