We've seen time and again how "takeover targets" provide the opportunity for truly explosive gains. The right company finds the right buyer, and investors gleefully strap in for a virtually instantaneous double- or triple-digit ride.
Deal-making in general has done some "exploding" of its own over the past few years. 2018 broke records, with some $3.3 trillion worth of dried ink in place by September. That figure was bolstered by the advent of so-called "megadeals" worth more than $5 billion.
Companies have finally figured out the mother of all corporate no-brainers: If you can't beat 'em... buy 'em.
They've realized there's no point in throwing millions (or billions) of your - scratch that, your shareholders' - dollars at a thorny R&D, tech, or PR problem when you can just ride out, find some smaller company that's already done the work, and... acquire, acquire, acquire.
So, when we come across a frenzy of M&A activity in an already rapidly growing, high-profit sector like legal cannabis, it pays to stop and take a good hard look at what's happening.
Let's take a look at how powerful a moneymaker marijuana deals could be next year...
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There's Incredible Deal Activity in Cannabis
As if to put a fine point on it, this month, Anheuser Busch InBev NV (NYSE: BUD) - the world's largest beer company and the owner of Budweiser - and Canadian cannabis leader Tilray Inc. (NASDAQ: TLRY) entered a partnership to research the development of non-alcoholic cannabis beverages.
This wasn't even an actual merger announcement - just a partnership - and Tilray tacked on $5 a share.
Get Ready: These Four Cannabis IPOs Could Unleash Up to $12 Billion in New Wealth - Learn More
Mergers and acquisitions have a major role in the shaping of the cannabis industry. The number of mergers and acquisitions we saw in 2017 more than doubled in 2018.
Going into 2019, we're going to continue to see an exponential increase.
The National Institute for Cannabis Investors has been talking about the era of consolidation since its inception.
Earlier this month, we saw another major proof point in the $1.8 billion Altria Inc. (NYSE: MO) deal with Cronos Group Inc. (TSE: CRON).
That's simply "big tobacco" buying in to "big marijuana." Mergers and acquisitions are the major vehicle by which industry giants will enter this industry.
But M&A doesn't exist solely for the purpose of monopolization. In fact, many of the mergers and acquisitions we'll see will be the result of smart business moves for the mutual benefit of two companies. Helix TCS Chair and CEO Zachary Venegas spoke a lot about this while my research team was at MJBizCon, the largest cannabis conference in the world, last month.
For smaller companies in some industry sub-segments, it could be their only way to truly compete now that cannabis companies are increasingly choosing to either bring in big money corporations from the mainstream world or narrow their focus to dominate a specific niche, like craft or organic products.
Here's what I'm talking about...
The Small Firms Skipping Big Alcohol & Big Tobacco
Mergers and acquisitions occur for a variety of reasons, including access to technology, key personnel, operational expertise, or capital.
And as I've noted, sometimes it's about survival.
These could be two public companies looking to get bigger, two private firms coming together to make a successful IPO a reality, or a public-private mix.
Think about it this way: If your company is the best of the best at producing superior cannabis, that doesn't necessarily mean your company is adept with data analytics, for example. If another company has proven its mettle in that field and is looking for the next step in expansion, a merger with your company may be the best move for all parties, including investors.
Or let's say your company has been able to establish a moderately successful brand, but you don't have the marketing expertise - or, perhaps, even the desire - to take your company to the next level. A company with better-established logistics may purchase your company as a means of acquiring an already successful brand. An acquisition here could allow you to cash out with exceptional profits while giving the acquiring company something upon which to build.
Ideally, this symbiosis can make two decent companies one spectacular company. And being able to spot the best consolidation plays can be the difference between making huge gains and missing out entirely.
So, while big companies entering the cannabis space may dominate the mainstream headlines, we want to make sure you don't miss important mergers and acquisitions that might otherwise fly under the radar.
Take these recent developments in a pair of highly speculative, volatile penny stocks...
An Established Brand Fueled the Latest Big Deal
Aleafia has established itself as a vertically integrated medical cannabis company based in Ontario. Its all-stock purchase of Emblem - a company IPO expert Danny Brody took public through a highly successful IPO in December 2016 - was worth $173 million.
Cannabis Mega-Trend: These New IPOs Could Lead the Next Wave of Portfolio-Changing Cannabis Stocks - Read More
With this acquisition, Aleafia will now have access to Emblem's provincial supply agreements with Alberta, British Columbia, Ontario, and Saskatchewan, in addition to other distribution deals including a joint international venture with a company based in Germany.
The deal results in the creation of Canada's single largest medical cannabis clinic network, with access to 40 medical clinics and education centers. In total, that network has served nearly 60,000 patients and counting.
Aleafia will also gain Symbl, Emblem's flagship brand. Symbl has consistently been ranked one of the best-selling brands in Canada. We have talked extensively about the importance of branding as the cannabis industry continues to shape itself, and there's no doubt Symbl's reputation influenced Aleafia's decision to buy.
While the company has incredible potential now, I'm not prepared to recommend Aleafia as a buy at this time. It's too early to tell.
What we're seeing here is the start of something unique - a "moment" - when M&A becomes a dominant trend that defines the industry. These deals aren't one-offs - they're just the start of something much bigger.
And this doesn't even begin to account for the tidal wave of cannabis IPOs that are headed our way in 2019. Don't miss our report on that, either - click here to learn how to get it.
Get Ready: A $12 Billion Tidal Wave of Wealth Could Be Headed Our Way
As we speak, an unprecedented flood of cannabis IPOs is barreling toward us.
We're talking about seeing as many as 42 millionaire-making IPOs hit in the next 90 days - four could go as early as Jan. 31.
And when it happens, it could create the next round of marijuana millionaires.
We want you to have an opportunity to be one of them.
About the Author
Greg Miller started working on Wall Street in September, 1987, just a month before the “Black Monday” stock market crash.
During his career there, he became an expert in just about every kind of publicly traded security - from blue-chip and small-cap stocks to municipals, junk bonds, and derivatives. As a portfolio manager, Greg was responsible for over $500 million of assets in mutual funds and insurance company accounts.
After leaving the Street, he designed a successful options trading strategy and made lucrative tech investments for a financial publication. He has also helped develop new products and worked with other editors to hone their strategies. He’s always been dedicated to deep, fundamental research - and he always will be - because he believes buying the very best companies at the right price is the best way to amass wealth in the stock market.