Microcap software company Akerna Corp. had high hopes for its role in the cannabis business, but things have gotten so bad it’s moving into another troubled industry, cryptocurrencies. This is just one of many examples that point to tough times in the pot sector.
Separate announcements from Akerna
and several other cannabis names in recent days cited problems such as oversupply and competition in Canada as well as in parts of the U.S. market.
The cooler prospects for cannabis companies, along with the overall bear market that took hold in 2022, have caused merger-and-acquisition activity in the cannabis sector to drop by 73.6%, to $10.2 billion for the 12 months ending Jan. 27, according to estimates published Monday by Viridian Capital.
Analysts at Viridian said deals have dried up party because of retrenchment and concentration on cash flow rather than growth. But demand for M&A may increase as record tightness in the cannabis capital markets, ongoing price compression and inflationary margin pressure push small and mid-sized companies into a liquidity crunch and drive increased distressed M&A opportunities, analysts said.
“The rugged operating and financing environment will be healthy for the industry, clearing away those unable to [respond] to the challenges and strengthening those that took the opportunity to improve their cash-generational capability,” Viridian analysts said in a research note. “It will present a once-in-a-lifetime opportunity for investors/companies/acquirers who can discern deep value and assemble distressed assets at deeply discounted prices.”
Akerna said Friday it plans to merge with bitcoin miner Gryphon Digital Mining Inc. in an all-stock deal. It will sell its cannabis-software business to financial-technology company POSaBIT Systems Corp. for $4 million in cash.
Meanwhile, Ayr Wellness Inc.
said Friday it will not move ahead with plans to acquire two dispensaries in Chicago for $55 million because “the cannabis market has changed significantly” in the 15 months since it inked the deal.
Instead, the Miami-based Ayr said it plans to focus on “implementation of operating efficiencies, lowering costs across our business, and reorienting our investments into the markets, segments and activities that are most impactful for our growth and profitability.”
Curaleaf Holdings Inc.
said Thursday it has reduced its payroll by 10% as it exits California, Colorado and Oregon in the face of price compression and unchecked competition from the illicit market. Curaleaf cut its workforce by 500 people to bring its total staff to 5,500.
In another development, Canadian cannabis company OrganiGram Holdings Inc.
said Thursday it had received notification from the Nasdaq that it is not in compliance with the minimum-bid price requirement to retain its listing, because its stock has traded below $1 for 30 consecutive trading days.
The company now has until July 24 to regain its minimum-bid requirement. If its bid price closes at or above $1 per share for a minimum of 10 consecutive business days, the company will again be in compliance. If not, Organigram may be eligible for an additional period of 180 calendar days to regain compliance status, or it may be subject to delisting.
Organigram’s listing on the Toronto Stock Exchange is not directly affected by the company’s Nasdaq compliance status.
As the green gold rush goes bust in the face of discouraging prospects for U.S. legalization, the cannabis sector is facing big challenges. Cannabis stocks have been trading lower for the past year even as the business grows on a state-by-state basis.
In December, the lame-duck Congress’s failure to pass the SAFE Banking bill was another blow to pot stocks. Less pot-friendly Republicans now control the U.S. House of Representatives.
Still, some names in the cannabis sector have been generating interest of late.
On Monday, Flora Growth Corp.’s
stock rose 13% after the all-outdoor cultivator, manufacturer and distributor of cannabis products said it expects $90 million to $105 million in 2023 revenue.
Analysts surveyed by FactSet are currently projecting $95.6 million in revenue for the company.
Flora Growth is including its new German-based business, acquired from Franchise Global Health, in its revenue projections. The company had a market cap of $35 million as of Friday.
Also read: FDA says it will not regulate CBD and calls on Congress to act