Mergers and acquisitions (M&A) within the cannabis industry saw a sharp decline in 2024, totaling $1.169 billion—a staggering 33% drop from the $1.749 billion recorded in the previous year, according to Viridian Capital Advisors.
But what factors are driving this downturn? Industry experts, including Frank Colombo, managing director at Viridian, shed light on the key reasons behind the slowdown and what it means for the future of cannabis M&A.
Key Reasons Behind the Decline of Cannabis M&A in 2024
1. Cash Flow Constraints & Changing M&A Strategies
The primary reason for the decline in M&A activity is the tightening of cash flow. Over the past two years, cannabis companies have shifted into cash conservation mode, leading to numerous canceled deals. The motivation behind mergers and acquisitions has also evolved.
Previously, cannabis companies pursued aggressive expansion strategies, aiming for a presence in as many states as possible—a “land grab” approach. However, this strategy has proven unsustainable. Now, businesses are prioritizing market concentration over sheer geographic expansion.
For example, Acreage Holdings once held licenses in more states than nearly any other operator. However, their widespread but shallow market penetration proved inefficient. Today, multi-state operators (MSOs) recognize the importance of establishing a strong, vertically integrated presence within select markets rather than scattering resources across multiple states.
2. Declining Stock Prices & Limited Financing Options
Stock prices play a crucial role in financing acquisitions. When stock values are low, using equity as currency for acquisitions becomes less attractive. Currently, cannabis stock prices are at all-time lows, making it difficult for companies to raise capital.
With limited cash reserves, MSOs must turn to alternative financing methods, such as debt or seller financing. However, many of these operators are already over-leveraged and hesitant to take on additional debt. This financial strain has significantly reduced the feasibility of M&A transactions across the industry.
How Are Cannabis Companies Adapting?
Rather than pursuing acquisitions, many cannabis companies are focusing on optimizing existing operations. Companies are allocating capital towards improving efficiency, expanding current facilities, and fine-tuning their business models. This shift prioritizes long-term stability over rapid expansion.
Challenges in Integrating Merged Cannabis Companies
Successfully integrating two companies post-merger is a challenge in any industry, but it is particularly difficult in cannabis due to regulatory complexities, operational differences, and cultural clashes.
Historically, data suggests that many large-scale acquisitions fail due to integration issues. Aligning corporate cultures, merging operational systems, and defining leadership roles often create friction that can hinder success.
A notable exception is Vireo Growth, which recently acquired operations in Utah, Missouri, Nevada, and Florida. Since these businesses operate independently in distinct markets, Vireo avoided many of the typical integration hurdles, allowing each region to maintain autonomy while benefiting from centralized capital allocation.
Emerging Trends: Intrastate Consolidation
Although interstate M&A has slowed, intrastate M&A—the consolidation of businesses within the same state—is on the rise. In states like Missouri and Michigan, smaller cannabis companies are merging to create stronger regional players.
However, state-specific regulations continue to pose challenges. For instance, Massachusetts limits operators to three dispensaries and 100,000 square feet of canopy space. These restrictions prevent MSOs from further expansion, leaving private operators and small businesses as the only viable acquirers within the state.
Why Has Hemp-Derived THC M&A Activity Stalled?
Hemp-derived THC products, which have gained popularity in gas stations and convenience stores, are predominantly produced by small, independent businesses. Unlike traditional cannabis companies, these operators have not yet reached the stage where M&A consolidation is a strategic necessity. As a result, this segment has seen little to no acquisition activity.
Outlook for Cannabis M&A in 2024 and Beyond
Several challenges continue to dampen M&A activity in the cannabis industry:
- Declining stock prices limit financing options.
- Regulatory hurdles and lack of federal reform in Washington, D.C.
- Flat or declining revenues and shrinking profit margins across the industry.
While the current environment is not conducive to large-scale acquisitions, industry experts predict consolidation will eventually be necessary for long-term sustainability. The cannabis sector is expected to evolve into an “hourglass-shaped” market, with a few dominant players at the top, a thriving niche of craft growers at the bottom, and minimal mid-sized operators in between.
Final Thoughts
The cannabis industry’s M&A landscape is shifting from aggressive expansion to strategic consolidation. Companies focus on strengthening their market positions, conserving cash, and navigating financial constraints rather than pursuing large-scale mergers. While current conditions may not favor acquisitions, long-term industry consolidation remains inevitable.
For now, cannabis businesses must adapt to these challenges by optimizing their operations and positioning themselves for future growth in a more stable market environment.