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New Report on Cannabis M&A’s Highlights Industry-Wide Changes

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A report, issued on Tuesday by Bianchi & Brandt, “assesses the current mergers and acquisitions environment, reflects on the impact of regulatory changes to federal legality—including access to traditional banking—and takes a deep look at the viability of U.S. cannabis operators and global investors who are fueling the industry,” the Arizona law firm said in a press release.

Titled “A Corporate Law Perspective on The Great Correction in Cannabis M&A,” the firm’s proprietary trend report was “driven by the impactful insights of founding partners Laura A. Bianchi and Justin M. Brandt, who have more than 15 years of experience in the nascent cannabis industry.”

“The Great Correction is really all-encompassing,” Brandt said in the press release. “It applies to the cannabis industry’s initial frenzy of loose valuations with handshake deals that marked the start of the cannabis boom. The industry has since been invigorated by possible reform in cannabis policy at the federal level for the first time.”

The 15-page report opens with a section called “The Green Rush Is Over,” which details the diminishing returns in the once-bullish cannabis industry. The decline, the law firm says, has thrust small and medium sized cannabis businesses into the spotlight when it comes to mergers and acquisitions.

“The economic boom began in 2012 when Washington and Colorado legalized cannabis for adult use, jumped in 2018 when California recreational sales started, and surged dramatically again when legal cannabis was deemed “essential” by many states during the pandemic’s early lock-down phase in 2020. That script has since flipped to a scenario of oversupply, widespread layoffs, investment failures and plummeting stock prices.

The type and scale of cannabis M&As that the industry enjoyed prior to and during the pandemic was “corrected” in 2022 after the recent industry crash, and market conditions have returned M&A activity to a more grounded environment. Small and midsize businesses (SMBs) are now the focus of most of the activity,” the report says. 

But the authors of the report assert that it “is not all doom and gloom,” and “this is not abnormal.” 

“Market corrections are a necessary pathway to the long-term health and sustainability of the cannabis industry—and we’ve been working with our clients and partners to anticipate The Great Correction at hand so we can be prepared for where the market is headed next,” the report said.

A subsequent chapter deals with recessionary fears.

“Despite the old axiom that vice products are ‘recession proof,’ the global inflationary woes and macroeconomic issues the U.S. is dealing with continue to leave their mark on cannabis.

The current recessionary thinking has investors getting cold feet, and those feet are even more frigid when they’re talking about investing in the federally illegal cannabis industry. That illegality translates to limited access to all types of capital—including the most basic banking services, which businesses in other industries take for granted,” the report said. “The failure of Silicon Valley Bank justifiably made headlines and enforced investors’ wary outlook because of the services the bank provided to ancillary cannabis businesses. Their risk-averse or ‘risk-off’ strategy is only increasing the difficulty of raising capital in cannabis.”

Since Washington and Colorado made history by passing recreational cannabis legalization in 2012, dozens of states and cities have followed suit. 

But another chapter in the Bianchi & Brandt explains how regional policy shapes mergers and acquisitions, and that “no two state markets are the same.”

According to the report, factors that may vary from state to state include: “Caps on statewide licenses (including local restrictions) vs. open markets”; “Licensing structures (including vertical or horizontal integration)’; ‘Medical cannabis program requirements’; and “Allowable product categories, including edibles and concentrates.”

The report goes on to provide specific examples across various states. 

“In Utah, licensed medical operators are enjoying great success primarily due to the newness and restricted size of the market. In Illinois, caps on licenses and their scarcity make them highly valued and highly coveted. In a head-to-head comparison, Arkansas’ 38 medical dispensaries servicing its 3 million residents are worth significantly more in acquisition value than Oklahoma’s 2,800 medical dispensaries servicing the state’s 4 million residents. Investors are currently doubling down in Florida, betting on a potential adult-use vote in the coming year or two,” the report said. “New York, which is positioned to be one of the largest cannabis markets globally, is an instructive case of access fueling M&A activity. Capital raises and M&A transactions surged after New York legalized recreational sales. The recent announcement of 1,500 new cannabis business licenses and extended application deadlines will only increase the M&A enthusiasm pervading the Empire State.”

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Thailand Leaders Scramble To Backpedal Law as 6,000 Pot Shops Open

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Thousands of cannabis shops opened across Thailand after the nation became the first in Asia to decriminalize cannabis, and there are no signs of a slowdown as opposition to the industry grows, led by the country’s new prime minister. 

On June 9, 2022, Thailand removed cannabis from the nation’s list of banned drugs, making the country the first Asian nation to decriminalize pot. Government officials claimed that the move does not legalize cannabis for recreational purposes. Under Thailand’s new regulations, marijuana and hemp cultivation and commerce are no longer illegal. Restaurants and cafes are permitted to sell foods and beverages infused with cannabis, but only if they contain no more than 0.2% THC. Products with higher concentrations of THC are allowed for medical purposes.

Thailand’s new prime minister, Srettha Thavisin, declared war on drugs as a national agenda in his campaign, Bangkok Post reports, focusing on meth, but with part of the plan to scale back the country’s cannabis policy. “A consensus has been reached among the 11 coalition parties as well as all other parties in the opposition that the need to tackle the drugs problem is high on the agenda,” he said. “Let’s make today the start of a new fight to stamp out drug problems from society.” The falling price of meth in the country led to a surge in use. He also vowed to reclassify cannabis as a narcotic.

Thailand’s new leadership is rushing to rewrite the nation’s cannabis policy after around 6,000 cannabis shops opened up, and people found legal loopholes to sell psychoactive cannabis despite the country’s low limit on THC. 

The Strait Times reports the new law created a “regulatory vacuum,” following last year’s decriminalization measure, and it created a green rush with over 6,000 dispensaries spanning across the country.

Some in favor of cannabis, however, argued that adding new regulations, such as a track and trace system used for narcotics, could actually benefit consumers.

The massive growth isn’t being ignored, but leaders say the industry policies have to be revised. Health Minister Cholnan Srikaew said in a statement late on Tuesday, “Between economic and health benefits, we put health first.”

A new draft of Thailand’s cannabis bill failed to clear parliamentary hurdles before an election in May. The bill was significantly rewritten due to concerns that misuse of cannabis could lead to addiction.

The Guardian reports that Thavisin, has said his administration will “rectify” the country’s cannabis law and limit its use to medical purposes—all within six months. PM Srettha came into power last August, and ran his campaign under the Pheu Thai Party—with a hardline anti-drug agenda, promising to control the nation’s exploding cannabis market. Furthermore, the Pheu Thai Party is now in a coalition with Bhumjaithai Party led by Deputy Prime Minister Anutin Charnvirakul, which led to the decriminalization of cannabis in the first place.

“The law will need to be rewritten,” Srettha told Bloomberg reporter Haslinda Amin in an interview in New York, where he was attending the UN general assembly. Bloomberg posted a video of the interview on X, formerly Twitter.

EXCLUSIVE: Thailand will end the free use of cannabis, a year after becoming the first in Asia to decriminalize the drug, says the nation’s new leader Srettha Thavisin. Weed can be used for medical purposes only, he says.

Read the full story: https://t.co/bFa62V0ncG pic.twitter.com/2VdrWULvvs

— Bloomberg (@business) September 21, 2023

“It needs to be rectified. We can have that regulated for medical use only.”

When asked if there will be a compromise for recreational use of cannabis, Srettha answered “no,” adding that problems due to cannabis use have been “widespread lately.”

High Times covered exactly how widespread the industry is getting.

A four-part series by High Times Vice President of Content Jon Cappetta, starting with Part 1, covered the new cannabis scene in Bangkok, Thailand. There, dispensaries dotted the streets all over and strip malls were home to as many as 20 cannabis businesses.

Thanet Supornsahasrungsi, group executive director of Sunshine Hotels and Resorts in Pattaya, said most of the cannabis shops that are open sell products meant for recreational use.

“If we would like to use it for medical purposes, law enforcement should be stricter to make sure we can offer them medical treatment which is safe for their health,” Thanet told Bangkok Post in September.

Things have been shaping up to loosen cannabis laws for years in the country. In 2018, Thailand became the first Southeast Asian nation to legalize cannabis for medical use. Two years later, the Thai cabinet approved amendments to the country’s drug laws to allow for the production and sale of medical cannabis, including flower. 

Thailand remains an island of tolerance of cannabis, amid other countries like Singapore and Malaysia that impose strict corporal and capital punishments for cannabis-related offenses.

The country’s new prime minister aims to change that, ensuring that only medical dispensaries stay put.

The draft bill will likely be submitted for Cabinet approval in December. 

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South African National Assembly Approves Bill Legalizing Cannabis for Personal Use

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Following a major 2018 judgment, which decriminalized the private use of cannabis, it appears that South Africa could finally be inching toward legalization of personal cannabis use. However, there are a number of asterisks — as there often are when it comes to cannabis reform.

On Tuesday, the South African National Assembly approved a bill that would legalize the personal use of cannabis, BusinessLIVE reports. The Cannabis for Private Purposes Bill has been in the works since the country decriminalized private cannabis use in 2018 and now heads to the National Council of Provinces for concurrence.

Parties including the African National Congress, Democratic Alliance, Inkatha Freedom Party, Economic Freedom Fighters, National Freedom Party and Pan Africanist Congress of Azania all showed support for the bill, while the Freedom Front Plus and the African Christian Democratic Party opposed it during the National Assembly’s plenary meeting held Tuesday afternoon.

While a number of African countries have moved to legalize cannabis cultivation or medical cannabis, the move would set a precedent for adult-use cannabis on the continent. Still, the reform measure has one major caveat.

Democratic Alliance Member of Parliament Janho Engelbrecht spoke on the bill in the National Assembly, highlighting adults will only be allowed to use cannabis privately in their homes and sales will still be strictly prohibited should the measure pass.

“People should bear in mind what this bill is about. It is about cannabis for private use by adults. You are not allowed to buy or sell cannabis, because this still remains a criminal activity with severe consequences. If you want to smoke it, you have to grow it, don’t buy it,” Engelbrecht said.

However, similar to many of the reform measures passing throughout the United States, the bill would also provide for the expungement of criminal records for those convicted of possession, use or dealing in cannabis based on presumption. It does not specify the quantities of cannabis plants and dried cannabis a person would be allowed to possess for private use. It also does not legalize cannabis for medical use, nor does it create a regulated commercial market.

Justice and Correctional Services Minister Ronald Lamola will draw up the regulations surrounding private adult cannabis use to submit to Parliament for approval.

So, why the delay? Why did the National Assembly take five years to push the bill forward? According to Moloto Mothapo, a Parliament spokesperson, the bill’s potential impact on children was the reason for the continued delays in its passage. 

Mothapo also said that the Department of Justice and Constitutional Development called upon the committee to consider broadening the bill’s scope, namely to include considerations surrounding the bet of interest of children as it pertains to legalizing private adult-use cannabis.

“The bill as tabled and deliberated on by the committee up until its meeting on September 12, 2023, did not look beyond the adult-centered focus of the private-purpose use of cannabis,” Mothapo told IOL.

While the bill does not expressly create a South African recreational cannabis market or legalize cannabis sales, Mothapo shared the committee’s hope that the measure may create a pathway for the country’s future cannabis industry. 

The South African government also seems to be on board, as it has identified the Cannabis and Hemp sector as one of 14 priority sectors holding “significant potential to secure investment, job creation and support for sustainable rural livelihoods, in recognition of people’s rights.”

In 2017, the Western Cape Town High Court ruled that prohibiting cannabis use by adults in their private homes is unconstitutional, following a case filed by Rastafarian Garreth Prince and former Dagga Party leader Jeremy Acton. The pair argued that the ban on the personal use of cannabis was discriminatory and outdated, namely that it disproportionately targeted Black people and Indigenous South Africans. 

The Constitutional Court affirmed the ruling the following year, and the government must approve an appropriate bill by Sept. 28, 2024 to finalize the legislative reform process.

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Mississippi Cannabis Provider Sues For Right To Advertise

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The owner of a cannabis dispensary in Mississippi has filed a lawsuit alleging that state laws which prevent him from advertising his business violate his First Amendment rights.

Clarence Cocroft II of Olive Branch, Mississippi is the owner of Tru Source Medical Cannabis. According to the Associated Press, Cocroft filed a lawsuit Tuesday because he says regulations put in place by the Mississippi Department of Health have made it inordinately difficult for him to run his business. 

Mississippi legalized cannabis for medicinal purposes in 2022 but the laws only allow for people with certain “debilitating conditions” to obtain a recommendation. The Mississippi Department of Health opted to ban cannabis providers from advertising in any way shape or form. Cocroft said this is a violation of his constitutional rights as a business owner. 

“All I want to do, like any other business owner, is have the opportunity to advertise. If I pay taxes in this business, which I do, I should be able to advertise,” Cocroft said at a news conference. “All I’m asking from this state is to provide us with the same liberty that they’ve provided other businesses.”

According to the Mississippi Department of Health website, Mississippi cannabis businesses are allowed to have a sign on their store and have a website with a list of products available but they cannot otherwise participate in any form of communication that could be perceived as advertising. An attorney for Cocroft, Katrin Marquez told the Associated Press that this constitutes unlawful censorship.

“Under the ban, Clarence can’t advertise in any media. He cannot place ads in newspapers or magazines, on television or radio, or even on billboards that he already owns,” Marquez said. “The First Amendment does not allow a state to completely censor a legal business. If it is legal to sell a product, it is legal to talk about that product.”

The list goes on. Legally operating cannabis dispensaries in Mississippi are not allowed to display products in their window, not allowed to send out mass text messages or emails. They can’t offer discounts, promotions or deals of any kind nor can they give away free product or any kind of samples. They also can’t put their business name on an Adopt-a-Highway sign or an electronic interstate sign.

Cocroft told the Associated Press that when he started his business, he actually set aside some money for advertising and even bought high-profile billboards in high-volume areas of the state which he has since been forced to lease out to other businesses. 

“It’s simply unfair that every other legal business in Mississippi is allowed to advertise, while I have to rely on word of mouth,” Cocroft said.

Many states with legal adult-use or medical cannabis markets have enacted regulations restricting cannabis advertising. Most states opt to apply certain restrictions on cannabis advertising on public broadcasts to ensure that the majority of the audience who will see the ad will be of legal consumption age but the particularities vary state to state.

Most of these restrictions are likely not First Amendment Violations based on comparable Supreme Court cases related to tobacco and pornography advertising which have determined that reasonable time, place and manner restrictions are not First Amendment violations, but few states have outright banned cannabis advertising to the degree that Mississippi has. Louisiana, Arkansas and Alabama have similar laws banning cannabis advertising through public mediums, but Marquez argued to the Associated Press that Mississippi’s laws are harsher still. 

“The state government cannot simultaneously authorize the legal sale of a product or service, while forbidding the truthful advertising of said product,” Marquez said. “No law, state or federal, justifies the censorship in this case.”

According to the Associated Press, Cocroft is represented in this lawsuit by the Institute for Justice and his lawsuit is specifically targeted at leadership in the Mississippi Department of Health, Department of Revenue and Alcoholic Beverage Control Bureau. The language of the lawsuit alleges that state regulations unfairly target legally operating cannabis  businesses trying to utilize their First Amendment rights to spread truthful, commercial speech. 

Mississippi state law allows cannabis patients to obtain 3.5 grams of cannabis once per day, six days per week. The list of qualifying conditions is short and limited to illnesses like cancer, HIV and Parkinson’s disease. A full list can be found here. 

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