The merger’s cancellation points to a challenging dealmaking environment in the cannabis industry as the sector has declined close to 50% in the past few months.
Business Insider spoke with lawyers, bankers, and analysts who work with cannabis companies about what this means for the industry.
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It has been a tough week for publicly traded cannabis companies, capping off a difficult few months for the sector.
In a surprise move on Tuesday, MedMen said it was pulling out of its proposed all-stock merger with PharmaCann. The merger, which was first announced in October last year, would have created one of the largest US cannabis companies and was valued at $682 million when it was announced.
Slumping share prices and consistent headwinds in the cannabis industry — namely, fear over illnesses caused by THC vapes and the slowing progress of marijuana legalization in the US — have made for a challenging dealmaking environment, according to bankers, analysts, and lawyers working with cannabis companies that Business Insider spoke with. In the past six months, the Horizons Marijuana Life Sciences Index ETF, a fund that tracks cannabis stocks in the US and Canada, has slipped close to 50%.
“The initial wave of investors that went after this market has been tapped out or exhausted,” Marc Hauser, the vice chair of the law firm Reed Smith’s cannabis team told Business Insider in an interview. “Companies are having a much harder time raising capital than just 12 months ago.”
For his part, MedMen CEO Adam Bierman cited the challenging capital-markets environment for cannabis companies and the need to change up strategies as the reasons for the deal’s termination. The company also pushed out its chief financial officer, Michael Kramer, and replaced him with Zeeshan Hyder.
Vivien Azer, an analyst at the investment bank Cowen, called the deal’s failure a “surprise” after it cleared a Department of Justice antitrust review a month ago and MedMen put out an “optimistic” statement about the deal’s prospects.
MedMen isn’t the only cannabis company facing troubling news this week. Hexo Corp. pulled its 2020 forecast on Thursday, citing a challenging operating environment in Canada, causing its shares to free-fall. And on Wednesday, Aleafia terminated a supply agreement with Aphria after it said the latter company didn’t meet obligations, causing shares in both companies to tumble.