Mergers and Acquisitions in the Cannabis Industry Decline in 2024

Key Factors Behind the Decline in Cannabis M&A

According to Frank Colombo, managing director at Viridian Capital Advisors, several elements have contributed to the decline in cannabis industry mergers and acquisitions. Companies are prioritizing financial conservation, shifting their strategic approaches, and facing difficulties in securing funding, all of which have hindered M&A activity.

Shifting Priorities: From Expansion to Market Concentration

In previous years, cannabis companies engaged in a “land grab,” attempting to establish operations in multiple states. However, this strategy proved unsustainable, leading many multi-state operators (MSOs) to focus instead on market concentration. Companies now recognize that profitability is more attainable through a strong presence and vertical integration within select markets rather than dispersed, shallow operations.

Financial Challenges Limiting Cannabis M&A Activity

One of the primary roadblocks for cannabis M&A is the scarcity of cash and the struggle to raise capital. Stock prices for cannabis companies remain at all-time lows, making stock-based acquisitions unappealing. Meanwhile, the high cost of borrowing has discouraged companies from financing deals through debt. Many MSOs are already at or near over-leveraged status, limiting their ability to pursue acquisitions.

The Difficulty of Integration in Cannabis Mergers

Successful integration remains a significant challenge for cannabis industry acquisitions, as it is in many other sectors. Differences in corporate cultures, operational systems, and management structures often hinder seamless mergers. Many acquisitions fail due to these complexities, leading some companies to favor strategic investments in existing operations rather than acquiring new entities.

Intrastate M&A: Consolidation Within Individual States

Rather than expanding across state lines, many cannabis businesses are turning to intrastate mergers. States like Missouri and Michigan are witnessing increased consolidation among smaller companies, creating stronger regional players. However, regulatory constraints in states like Massachusetts, which limit the number of dispensaries and cultivation space per company, have stifled M&A opportunities.

Hemp-Derived THC Market and Lack of M&A Activity

The hemp-derived THC sector, dominated by small private companies, has yet to see significant consolidation. Unlike larger cannabis firms, these businesses operate independently and have not yet reached the stage where mergers and acquisitions are a strategic priority.

The Outlook for Cannabis M&A in 2025 and Beyond

Industry challenges such as flat revenues, declining profit margins, and regulatory uncertainty in Washington, D.C., are discouraging large-scale M&A activity. However, long-term consolidation remains inevitable. Experts predict an industry structure resembling an hourglass—dominated by large corporations at the top, a thriving craft segment at the bottom, and fewer mid-sized businesses in between.

This analysis underscores the current challenges and evolving strategies within the cannabis M&A landscape. As financial and regulatory conditions change, companies will need to adapt their approaches to sustain growth and profitability in the coming years.