The cannabis industry has been experiencing significant changes in recent years, with increased consolidation becoming inevitable. According to Viridian, a leading provider of financial and strategic advisory services for the cannabis industry, the latest data shows a higher concentration level in 2023 compared to 2020.
The data presented by Viridian at the Green Market Finance Summit at NECANN on March 22 shows the share of sales by the top 20 brand houses each year. This data is based on information from BDSA, a leading provider of cannabis market intelligence. The analysis includes all retail sales of the brands associated with a brand house, showcasing the level of consolidation in the industry.
In contrast, an alternate calculation based on company financial statements shows a slightly different picture. This calculation aggregates the highest twenty company revenues each year divided by the total retail sales number. However, this approach may underestimate the level of consolidation due to factors such as combining retail and wholesale revenue and neglecting the retail markup on wholesale sales.
Despite the differences in the two data sets, Viridian believes that the BDSA approach is superior and that the demonstration of increased consolidation in recent years is likely accurate. The trend towards consolidation is expected to continue, with larger, more liquid companies benefiting from incremental investment in the industry.
Economies of scale in production, packaging, distribution, and marketing are driving the consolidation in the cannabis industry, similar to what has occurred in the beer and wine industries. As capital markets reopen and full legalization potentially occurs, larger companies with cost advantages will likely emerge as industry leaders.
While there will always be thousands of small cannabis companies, those with superior marketing skills and differentiated products will thrive in a consolidated market. The future of the cannabis industry is likely to see further consolidation, with larger companies dominating the market and smaller companies either growing larger or being acquired.
The Viridian Cannabis Deal Tracker provides valuable market intelligence for cannabis companies, investors, and acquirers to make informed decisions regarding capital allocation and M&A strategy. Since its inception in 2015, the Deal Tracker has tracked and analyzed over 2,500 capital raises and 1,000 M&A transactions, totaling over $50 billion in aggregate value.
In conclusion, the cannabis industry is experiencing a significant shift towards consolidation, driven by economies of scale and market dynamics. The data presented by Viridian highlights the trends and challenges facing the industry, with further consolidation expected in the coming years.
