Lift Panelists Call for Cannabis M&A, Comment on Short Sellers

The Lift (TSXV:LIFT) & Co. Cannabis Business Conference and Expo ran from January 10 to 13 in Vancouver, with day three bringing a panel led by Tabitha Fritz, CEO of Fritz’s Consulting.

Neal Gilmer, analyst with Haywood Securities, Leslie Ducommun, manager of cannabis practise with Jones Brown, and Niel Marotta, president and CEO of INDIVA (CSE:NDVA), acted as the speakers.

The panel centered on recent trends in the public market, and whether or not there are still opportunities in cannabis for new investors.

One topic in focus was recent market activity in terms of short sellers attacking cannabis companies. Gilmer explained that short sellers are nothing new to the public markets, but said their attacks reaching cannabis companies is a first.

In 2018, various new reports appeared and gained prominence against all types of cannabis companies. Most recently, Aphria (NYSE:APHA,TSX:APHA) was targeted by multiple reports from a short seller group.

Since the reports were issued, Aphria has received backing from researchers at financial institutions, alleviating concerns about its recent acquisitions in the Latin American cannabis market.

Gilmer suggested that there could be more short seller attacks in the cannabis space “because it’s attracted so much attention” lately.

“It’s got probably a bit higher profile as far as opportunities for short sellers to target a particular company,” Gilmer said, saying that companies in the space have gained high valuations with promise for growth.

Ducommun added that she feels it’s unfortunate these attacks have come to the industry so quickly.

Volatility could lead to further deal making

Speaking about volatility, Gilmer explained this has led to a wide array of percentage changes in cannabis stock prices and valuations in a short amount of time.

The analyst said he expects to see companies to be “opportunistic” and take advantage of these wide market swings to seek acquisitions.

Gilmer expects M&A activity to continue, and said it should lead to a significant amount of deal making in the cannabis space throughout 2019.

However, when asked if all this expected M&A activity will lead to a market with only a small group of companies owning the space, the analyst said he doesn’t see such a massive reduction coming soon.

Gilmer explained that while he does expect the final number of companies in the market — specifically licensed producers (LPs) — to be less than it is now, he doesn’t believe it will get to only three of four firms controlling the industry.

Marotta added that he doesn’t see a great many bankruptcies coming to the market and reducing the players available.

He hopes the cannabis industry ends up looking like the beer industry, where there are major brands and companies, but also a “long tail of smaller producers that find a way to exist and satisfy their clients.”

Ducommun added that micro-cultivators will spur more M&A activity, as these companies offer boutique aspects to consumers and provide different products from LPs.

Hemp market opening in the US

The panelists were also asked about the passing of a US$867-billion farm bill in the US, which legalized hemp and its derivatives, including CBD.

Gilmer built on his comments from a previous panel at the show, saying he supports the CBD market; but he added it is going to come down to which company has realized products that sell.

Marotta indicated that his company has no interest in jumping into this space at the moment, but said he wants to see unique products that capture the attention of consumers, instead of hemp-growing stories from companies in the space.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: INDIVA is a client of the Investing News Network. This article is not paid-for content.