M&A Lights Up U.S. Cannabis Industry as BlackRock, Vanguard Announce Investments

Largest-Ever Acquisition in U.S. Cannabis Markets

In what will be the largest US-based cannabis acquisition to-date, Chicago-based Cresco Labs has agreed to buy CannaRoyalty in an all-stock transaction valued at $825 million. Cresco stock soared 10% higher and closed at an all-time high, signaling investor support for the deal.

This follows on the heels of last week’s acquisition of Verano Holdings (another Chicago-based MSO) by Harvest Health & Recreation. That deal, still pending, is valued at $850mm. These deals are just the latest and largest in a sector that has seen a substantial increase in M&A activity—a trend that industry experts expect to continue:

“The cannabis market is ripe for significant consolidation, and the pickup we have experienced recently is likely only the beginning.”

— Alan Brochstein, cannabis industry analyst & founder of 420 Investor

Among the other notable deals are Constellation Brands’ controlling investment in Canopy Growth, and Altria’s stake in Cronos Group. Other industries are taking interest as well—experts continue to expect pharmaceutical companies to get involved via acquisition of various Cannabis LPs.

“In the U.S., a number of multi-state operators (MSOs) have been quite aggressive on the M&A front, purchasing privately held operators.”

These deals include Cresco Labs acquiring VidaCann, Green Thumb Industries acquiring Essence, and iAnthus Capital closing on the U.S. assets of MPX Bioceutical.

Expect the volume and size of these deals to continue to increase as the industry rapidly prepares for increasing levels of legalization.

STATES Act Reintroduced in Congress with Bipartisan Support; A.G. Barr Voices Endorsement

In a win for state’s rights and in turn, state-legal cannabis businesses, a group of bipartisan lawmakers has re-introduced the STATES Act into both houses of Congress.

The legislation would amend the Controlled Substances Act to exempt cannabis business that comply with state laws, essentially ending federal harassment of state-legal marijuana industry.

“As a result of this kind of legislation, it would fix a number of problems,” says Colorado cannabis attorney Rachel Gillette, “including limited access to banking, as well as 280E, which is the provision of the tax code that says if you’re in the business of trafficking in a Schedule-I or Schedule-II substance that’s illegal under state or federal law, that your business is not entitled to ordinary business deductions. That’s a very punitive tax treatment from the federal government. In essence, it puts people out of business.”

The bill has even received the endorsement of the nation’s top law enforcement official, Attorney General William Barr, who would be charged with enacting its enforcement should it become law:

“Personally I would still favor one uniform federal rule against marijuana,” Barr told Sen. Lisa Murkowski (R-AK) earlier this month, “but if there is not sufficient consensus to obtain that, then I think the way to go is to permit a more federal approach so states can make their own decisions within the framework of the federal law, so we’re not just ignoring the enforcement of federal law.”

The STATES Act was first introduced in June 2018 after President Trump agreed to support cannabis legalization legislation in a deal struck with Sen. Cory Gardner (R-CO) over Dept. of Justice Nominees.

“ Since the campaign, President Trump has consistently supported states’ rights to decide for themselves how best to approach marijuana.”

— Sen. Cory Gardner (R-Colo.)

Attorney General William Barr has also indicated his implicit support for state-legal cannabis industry by stating he would not direct federal authorities to target individuals or businesses for marijuana violations that are compliant with their state and/or local law.

“The STATES Act is being reintroduced at a key moment when bipartisan support for cannabis policy reform is at historic levels in both chambers of Congress and among the general public.”

— Aaron Smith, executive director, National Cannabis Industry Association

“Regulating cannabis is successfully replacing illicit markets with licensed businesses in a growing number of states across the country. This legislation will simply allow those state regulatory programs to succeed without federal interference.”

Treasury Secretary Mnuchin Urges Bipartisan Banking Solution for Cannabis Industry

Federal lawmakers pressed Treasury Secretary Steven Mnuchin for his take on the current state of affairs for cannabis industry banking after House Financial Services committee approved the SAFE Banking Act by a margin of 45-15—the first time a congressional committee approved a bill related to cannabis banking.

“Let me just say, I hope this is something that this committee can on a bipartisan basis work with since there are people on both sides of the aisle that share these concerns,” Mnuchin said.

 HR 1595, a bipartisan bill known as the Secure and Fair Enforcement (SAFE) Banking Act, would prevent federal regulators from targeting financial institutions that provide services to cannabis businesses operating in compliance with state laws. This would essentially enable state-legal cannabis businesses to access credit and other financial services from which they have long been denied.

“It is a relief to see Congress supporting common sense marijuana reforms that are in line with the will of the people.” – Steve Gormley, CEO and director of International Cannabrands

Colorado republican Rep. Ed Perlmutter introduced the bill earlier this year, with 108 cosponsors in the house. Since then, the bill has picked up additional support, now boasting a total of 152 cosponsors from both sides of the aisle.

“This bipartisan legislation takes an important step toward enabling financial services for cannabis-related businesses…We believe such explicit, consistent direction from federal financial regulators will provide some needed clarity for banks and help them to better evaluate the risks and supervisory expectations for cannabis-related customers.”

— Letter to Congress from the American Banker’s Association

After the House Financial Services Committee approved the bill (with a 45-15 vote), U.S. Sens. Cory Gardner (R-CO) and Jeff Merkley (D-OR) introduced companion legislation in the Senate. The American Bankers Association quickly followed up with a letter to senators, urging action on this bill.

Fund Giants Vanguard, BlackRock Increase their Pot Exposure as Legalized Weed Gains Momentum

In their quarterly Schedule 13G filings, BlackRock and Vangaurd disclosed a combined ownership stake in Cannabis REIT Innovative Industrial Properties (NYSE:IIPR), amounting to over 15% of the company’s outstanding shares.

As Cannabis stocks continue to make investors rich, and in the process make headlines, large institutional players are increasingly forced to take a more serious look at the industry. In addition to providing analysis on the market, the two biggest names in money management have now taken stakes in top Cannabis companies.

On the heels of the news, S&P Dow Jones announced it would be adding IIPR to its SmallCap 600 index, marking a major milestone for mainstream acceptance of legal cannabis among investors.

Interestingly enough, although both 13Gs were filed in February, the nature of the filings indicated that both fund managers had taken their respective positions at the end of 2018.

BlackRock has since disclosed a second Cannabis deal, with five of their actively managed funds invested for a total of $11mm in CuraLeaf Holdings, according to Bloomberg.

CuraLeaf operates 42 dispensaries in 12 states and recently announced plans to distribute their CBD-infused products via CVS Pharmacy locations. The company’s stock surged as high as 19% on the news of the CVS deal and has a market cap of approximately $2.3bn.

The BlackRock-CuraLeaf deal represents a departure from the typical aversion we’ve seen from major institutions around investing in operations that handle the cultivation, processing and distribution of the cannabis plant itself.

In the past, institutional investors have opted instead to focus their capital on so-called ancillary business that provide real estate, software, and other B2B solutions tailored to the cannabis industry, feeling that these investments may be easier for compliance teams at major money managers to stomach.

The increasing likelihood of U.S. legalization could give more institutional fund managers cause to enter the market: several Democratic presidential candidates favor legislation that would open the banking system to cannabis.

Earlier this year New Jersey Senator and presidential hopeful Cory Booker reintroduced the Marijuana Justice Act, which would remove the drug from the federal list of controlled substances. Fellow 2020 Democratic hopefuls, including senators Kirsten Gillibrand, Bernie Sanders, Elizabeth Warren and Kamala Harris, sponsored it.

Fmr. Spkr. John Boehner: “Cannabis is Here to Stay, the Industry is only Getting Bigger, and I am All In.”

The legal cannabis industry has an unlikely new supporter – retired Republican Speaker of the House and former anti-cannabis lawmaker John Boehner.

Since his retirement in 2015, however, Boehner has changed his tune. He now sits on the board of Acreage Holdings, a publicly traded cannabis company based in New York, and earlier this year appeared at the South by Southwest festival to give a keynote speech on legalization and reform.

In his one and only vote on the topic back in 1999, Boehner voted against allowing the use of medicinal marijuana in Washington, D.C. In 2011, he famously wrote a constituent saying he was “unalterably opposed to the legalization of marijuana.”

Boehner says he still doesn’t use marijuana personally and has never done so, but after discussions with friends, family, colleagues, and former constituents, feels like there may be more to marijuana than the old prejudices would have one believe.

“I feel like I’m like your average American who over the years began to look at this a little differently and I think over the last five years my position, it has kind of softened up and softened up,” Boehner said to NPR’s All Things Considered.

“I started to reach out to some of my friends, neighbors and others and I thought, ‘You know, there’s more interest in this than I would have guessed.’ “

Boehner’s shift has been fueled in part, he says, by his conversations with veterans, who use the product to help deal with chronic pain and PTSD, among other things. Unfortunately, prevailing regulatory conditions have hampered research into the therapeutic effects of cannabis as an alternative to opioids and anti-depressants and the Dept. of Veterans Affairs.

Indeed his reversal has mirrored a trend in the nation at-large. According to a Pew Research Center survey conducted last October, 62% of Americans support the legalization of marijuana – a 17% increase from 2010.

When asked by NPR about the attitudes of his former colleagues in the GOP, Boehner said, “States have spoken up, and I think even Republicans in Congress would recognize it’s time for Washington to get out of the way.”

“The next generation of billion-dollar cannabis companies are ripe for the picking, you just have to make smart moves,” Boehner told the National Institute of Cannabis Investors during their 2018 Cannabis Investing Summit. “Don’t go blindly investing in this sector because it’s exciting and you don’t want to miss the boat. Cannabis is here to stay, the industry is only getting bigger, and I am all in.”

“I do think that by decriminalizing [cannabis], you’re going to open up a lot more research so we can learn more about the 4,000 year history of the use of this plant.”

— Former Speaker of the House John Boehner


DISCLAIMERS: This site is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing on this site should be construed as a recommendation by Key Investment Partners LLC, its affiliates, or any third party, to acquire or dispose of any investment or security, or to engage in any investment strategy or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. Nothing in this site may be considered as an offer or solicitation to purchase or sell securities or other services.