High-Profile Mergers and Acquisitions Showcase Cannabis Industry’s Race to Build Market Share December 20, 2018 - Baystreet.ca Over the last six months, the cannabis industry has seen massive amounts of mergers and acquisitions, as companies hustle to scale up and build market share as fast as possible. As new legal marijuana markets have opened up, cannabis players such as PLUS Products (CSE: PLUS), Acreage Holdings, Inc. (CSE:ACRG) (OTC:ACRZF), Canopy Growth Corporation (NYSE: CGC) (TSX: WEED), Cronos Group (NASDAQ:CRON) (TSX:CRON), and KushCo Holdings (NASDAQ:KSHB) continue to make headlines with market-moving transactions. The world at large is slowly embracing the potential for cannabis legalization, with New Zealand soon voting on legalization, and even the UN itself seemingly coming around on cannabis. Even conservatives in the USA are softening their stance on the drug, with the latest Gallup poll showing two-thirds of Americans in favor of legalization. The result has been a race to establish market share, by many of the cannabis sector’s players looking to secure their place among a growing number of consumers. One such example is PLUS Products (CSE: PLUS), which has already made a name for itself as the top edibles brand in the world’s largest cannabis market, California. PLUS Products strengthened its California edibles positioning by acquiring California-based cannabis-infused baked goods brand GOOD CO-OP, INC. The acquired company has been featured in Fortune Magazine for its baked offerings, bringing to PLUS a solid reputation, and an additional 4,800 sq ft of manufacturing space and associated equipment in Northern California—bolstering PLUS Products’ footprint that already includes plans for a 12,000 sq ft manufacturing facility in Southern California. The acquisition exemplifies the sector’s fast-paced need to act quickly when the opportunity presents itself. “At PLUS we believe in executing quickly and are pleased we were able to close the agreement promptly after announcing the planned acquisition,” said Jake Heimark, CEO of PLUS. “I would like to thank the PLUS team that worked diligently on the deal as well as the GOOD team, who we are excited to have on board.” Other recent acquisitions in the sector include Acreage Holdings Inc.’s $160 million purchase of Form Factory, Inc., Canopy Growth’s C$220 million purchase of the makers of Volcano vaporizers, and rumblings of a potentially major deal between Cronos Group and Marlboro cigarette makers Altria Group which is on the horizon. PLUS FINDS THE RIGHT DEAL Getting ahead on the baked goods trend, PLUS Products sought out the reputable GOOD CO-OP brand. With its prominent position in the California edibles market, PLUS Products seemed to be a natural fit to takeover GOOD’s baked goods positioning. “Manufacturing consistent cannabis food products at scale is challenging, and few companies do it well,” said Mike Appezzato, CEO and Co-Founder of GOOD. “After talking to several companies in the space, it was clear to our team that only PLUS has the operational know-how to help us scale across California and throughout the United States.” Cannabis extract-based products are now the hottest segment of the industry. PLUS is well positioned to capitalize on the segment, as California’s top selling edibles brand, according to BDS Analytics. Earlier this year PLUS announced expansions to meet the growing demand for its branded product. The company is working towards developing $150M in annual production, with the potential to expand to $450M, through current development of plans to build the largest dedicated cannabis food manufacturing facility in the US. Holding the eighth temporary manufacturing license granted in California, PLUS Products was one of the first to introduce fully compliant products to the state. The company also has agreements with licensed distributors to sell its branded product to over 200 licensed dispensaries and delivery service customers. With its massive market size, trends in California which went legal at the beginning of 2018 could be indicative of the potential across all legal markets. Alternative forms of cannabis such as edibles, beverages, and vape pens account for up to 30% of California’s sales. Among those sales, baked goods represent 13% of the edibles market, excluding tinctures. CALIFORNIA’S TRENDSETTING WAYS In 2019 legal sales, California is expected to grow to $5.0 billion, officially making the state it the largest cannabis market in the world. As a comparable, 2019 expectations for the entire country of Canada are only expected to be $2.7 billion. California has witnessed an upward trend for edibles, much like longer established legal markets such as Colorado and Oregon. The market is evolving, with the biggest growth coming in the branded selections. These brands are creating new categories, sub-categories, and methods of consumption. Over the course of its long history of medical legalization, California has so far accrued nearly 250 brands of edibles. The state’s top two selling brands both come from PLUS, with its PLUS™ Sour Watermelon Gummies and PLUS™ Blackberry & Lemon Gummies taking the #1 and #2 spots respectively. Now PLUS Products is the #1 best-selling cannabis-infused edibles brand in California, with the GOOD CO-OP addition only helping to solidify the position. In the long run, edibles products are better positioned to attract a mainstream customer base. From a recent BDS report, PLUS unit sales grew 97% between Q2-Q3 2018. This surge took PLUS over the top, moving its edibles market ranking from #4 to #1 in retail sales. In both California and Colorado, the edibles share of total retail cannabis sales also grew, from 12% to 16% of total sales. Prices for edibles are remaining stable, whereas concentrates and flower prices have dipped since Q2 2015. ADDITIONAL IMPORTANT M&A ACTIVITY Canopy Growth Inc. (TSX: WEED) (NYSE: CGC) While its deal with Constellation Brands still stands as one of the cannabis sector’s biggest deals of all time, Canopy Growth isn’t done making acquisitions itself. Its latest major purchase was its entry into the cannabis vaporizer market with a C$220 million all-cash acquisition of Storz & Bickel, who are widely recognized as the global leader in vaporizer design and manufacturing. The German-based company are most well known as the designers and manufacturers of medically approved vaporizers, most notably the Volcano® Medic and the Mighty® Medic. The company exports devices to 50 markets around the world. Acreage Holdings, Inc. (CSE:ACRG) (OTC:ACRZF) Acreage Holdings is working to build a nationwide cannabis manufacturing and distribution platform. Its latest acquisition of Form Factory for $160 million helps the company to achieve this goal, as Acreage seeks to become the first national cannabis Consumer Packaged Goods (CPG) company, capable of creating and distributing predictable and scalable proprietary brands. The company is attempting to offer turnkey cannabis industry solutions to traditional non-cannabis CPG companies like Nestle, Mars, or Procter & Gamble. Cronos Group (NASDAQ:CRON) (TSX:CRON) Shares in Cronos Group soared over 20% upon an announcement that cigarette giants Altria Group (makers of Marlborough and other well-known brands) was in talks with the Canadian cannabis company for a possible investment. Given the reaction that Canopy Growth received when it signed with mainstream beverage makers Constellation Brands, it’s no wonder why Cronos received a boost, given the interest from Phillip Morris USA’s parent company. Though no agreement has officially been made, a deal between the two would be one of the largest combinations between mainstream tobacco and the booming but volatile marijuana sector. KushCo Holdings (NASDAQ:KSHB) Earlier in May, KushCo acquired Summit Innovations, which has been renamed Kush Energy. The acquisition focused on supplying hydrocarbons and solvents for the extraction process used in producing cannabis edibles, oils, and waxes. KushCo (formerly known as Kush Bottles) is an ambitious, vertically-integrated company that specializes in products custom-designed for the cannabis industry, including pop-top bottles, vaporizer cartridges, and tubes. Legal Disclaimer/Disclosure: While all information is believed to be reliable, it is not guaranteed by us to be accurate. Individuals should assume that all information contained in our article is not trustworthy unless verified by their own independent research. Also, because events and circumstances frequently do not occur as expected, there will likely be differences between any predictions and actual results. Always consult a licensed investment professional before making any investment decision. Be extremely careful, investing in securities carries a high degree of risk; you may likely lose some or all of the investment. 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