Cross-Border Pot Deals Getting More Creative

(Bloomberg) -- The line that divides Canada from the U.S. is looking more and more illusory for the cannabis industry. 

The 49th parallel used to be a big deal for marijuana growers. Canada’s legalization in 2018 spurred a generation of startups north of the border and investors flooded in with the hope they would follow the path of Canadian alcohol companies, which got a head start on U.S. competitors before prohibition was repealed. 

Now, as more U.S. states have legalized cannabis, American firms have overshadowed their Canadian peers. And some Canadian companies, unable to export into the U.S. with its larger population, stagnated. But a series of creative deals may upend those dynamics. 

Tilray Inc.’s purchase of MedMen Enterprises Inc.’s debt last week is the latest example. It’s similar to the first such creative cross-border deal, Canopy Growth Corp.’s option to buy U.S. company Acreage Holdings. Both could let Canadian companies buy a U.S. target if legalization occurs. It’s the third deal that gives Tilray a leg up on U.S. legalization: Its Aphria merger gave it SweetWater Brewing Company in Atlanta, which it can leverage to make THC drinks or distribute cannabis in the Southeast, while Manitoba Harvest could convert to selling THC edibles. 

Canadian retailer Fire & Flower also made a creative cross-border deal earlier this month by opening a dispensary in Palm Springs, California. While Canadian companies can’t export marijuana to the U.S., the store was created through a licensing partner, American Acres, which officially changed its name to Fire & Flower U.S. Holdings. The licensing agreement will also let it open stores in markets like Arizona, Nevada and other areas in California over the coming months, Fire & Flower said. 

Then there’s Scotts Miracle-Gro, which has gotten a boost from selling cultivation equipment into the cannabis market. The company is barred from getting into “plant-touching” businesses because it’s traded on the New York Stock Exchange. But the maker of fertilizer and gardening supplies this month invested $150 million in Toronto-based cannabis investment firm, RIV Capital. Chief Executive Officer Jim Hagedorn said the deal will let Scotts “participate directly in a larger marketplace as the legal environment changes over time.” The structure was made “with full appreciation of current banking and legal requirements,” Hagedorn said in the statement. 

Meanwhile, Flora Growth, a Colombia-based marijuana grower, got a foothold in the U.S. market through the purchase of a vape pen maker, showing that it’s not just Canadian companies that are jockeying for position ahead of an expected federal U.S. legalization. 

NUMBER OF THE WEEK

• 65%: The percentage of residents of Portland, Oregon, that has used marijuana. This makes it “the wildest city for marijuana in the U.S.,” ahead of Indianapolis and Oklahoma City, according to Online Betting Guide, a sports betting community.

QUOTE OF THE WEEK

“When I originally got the call I wasn’t interested. Then I met the team, visited Los Angeles, saw the iconic brands, saw the number of people standing in line, and I went to my Millennial-aged kids. I asked them about these MedMen products -- and there were rave reviews,” said Tilray CEO Irwin Simon in a phone interview about the company’s decision to buy a majority position in MedMen convertible notes. 

WHAT YOU NEED TO KNOW

• Ayr Wellness, a multistate cannabis company, will buy Cultivauna, a maker of cannabis-infused seltzers and water-soluble tinctures.
• Flora Growth agreed to buy U.S. vape-device maker Vessel Brand Inc. for around $30 million, a deal that will boost Flora’s international and U.S. presence.
• Cannabis firm the Parent Co., whose brands include Shawn “Jay-Z” Carter’s Monogram line, has hired one of the top executives at Clorox Co. as its new CEO.
• Tilray has a new option to get into the U.S. through a deal with MedMen Enterprises Inc.
• Cannabis company Eaze is looking to raise $75 million in a funding round that will value it at more than $700 million, according to Business Insider.
• Ayr Wellness reported second-quarter results and projected third-quarter revenue of about $100 million.
• New Jersey’s legal recreational marijuana sales will start within 180 days after a vote Thursday by a state panel regulating the industry. The decision primes New Jersey as a destination for adult buyers from neighboring New York, Pennsylvania and Delaware.

EVENTS

TUESDAY 8/24

• Cannabis Conference 2021 in Las Vegas, Nevada. The event runs through Aug. 26.

WEDNESDAY 8/25

• Jushi Holdings reports second-quarter results before the market opens.

THURSDAY 8/26

• Planet 13 Holdings Inc. reports second-quarter earnings after the market closes.

FRIDAY 8/27

• The Grow Tradefest, an industry showcase in Lake of the Ozarks, Missouri. The event runs through Aug. 29.

©2021 Bloomberg L.P.