Consolidation in Cannabis: What’s Happening With Mergers and Acquisitions? [UPDATED 2025]

What causes companies to seek acquisitions or to consolidate and merge? 

Economic Headwinds & Market Maturation

Most cannabis markets follow the same trend: initial expansion, sometimes explosively, followed by oversaturation, which leads to price compression, shrinking margins, and reduced profitability. Companies must scale operations while keeping overhead costs low to achieve profitability, and sometimes that simply isn’t possible. 

In a competitive market, money can be a major differentiator, and bigger companies can simply outspend their smaller competitors. Faced with the choice of closing or combining, many companies will seek to join forces, particularly the smaller players with less access to capital. A dwindling green rush means some people who dove enthusiastically into the market now must backpedal or drop out entirely in order to avoid bankruptcy. 

Regulatory Landscape & Federal Illegality

The federal illegality of cannabis places one of the heaviest burdens currently on the industry. IRS policy 280E disallows companies working in “illegal substances” from taking normal business deductions, placing a massive burden on small businesses that have to incur expenses that other industries can recoup. This policy is often cited as one of the main reasons why people exit the cannabis industry, because sometimes, there simply aren’t enough automations and efficiencies to overcome the enormous cost. 

And that’s assuming that businesses can get the financing to get started in the first place. Despite expansions in financing options, cannabis businesses still face limited access to capital compared with other industries, even other “sin industries.” This means many business owners must turn to private capital in order to raise enough funds to get started, or turn to M&A to recoup the cost they’ve sunk into the business. 

Since interstate commerce is still a pipe dream, companies looking to expand must navigate a complex and confusing patchwork of state regulations. This gives an advantage to larger companies, particularly MSOs, that have the internal team to deal with the numerous regulations, deadlines, and necessary paperwork. M&A gives MSOs the ability to penetrate deeper into a given market, without starting a brand from scratch. 

Strategic Advantages of Scale

Larger companies have an advantage in the cannabis industry, thanks to the principle of economies of scale. Larger companies have a lower cost of production per unit because the investment in the technology needed to cultivate, process, and distribute cannabis is spread over a wider margin. 

These larger companies also wield more purchasing power for supplies and services that can automate processes to cut costs. If you’re able to invest in cutting-edge technology for production or research and development, you’re able to stay at the forefront of streamlining production processes and reducing overhead costs better than your smaller competitors can.

It’s been an eventful few years for mergers and acquisitions in the cannabis industry—not necessarily from volume of activity, but from the changes the industry has weathered. 

Shift from “Land Grab” to Strategic Concentration

In the past, multistate operators often focused on expanding into as many states as possible as quickly as possible, trying to dominate shelf space and consumer awareness. But this tactic is expensive and time-consuming, particularly for cannabis companies dealing with a myriad of red tape and miscellaneous fees. In recent years, there’s been a shift from expanding as fast as possible to dominating key markets in certain regions. 

Rather than buying up all the competition, larger companies are now looking to acquire smaller businesses that exist in niches they are not currently in. This has slowed the rate of M&A, as big companies are becoming more thoughtful about their acquisitions, and smaller companies focus on differentiating themselves from the competition to attract potential investor interest. Companies with more stable funding are also looking closely at distressed assets for better deals. 

Types of Deals Observed (2023-2024)

M&A in the cannabis industry peaked in 2021, with a 68% decrease in capital investments from the previous year in 2022, according to Viridian Capital Partners. The decrease was due to lower volumes of M&A and smaller deal values. 

Despite this slowdown, 2023 and 2024 still brought notable mergers and acquisitions to the headlines, with small to midsize businesses taking up most of the activity. This is indicative of the realigned strategy mentioned above, with larger companies focused on specific niches, distressed assets, and market consolidation, rather than expansion for expansion’s sake. 

A few notable examples of M&A activity in the past two years include: 

• Vireo Growth Inc. Expands into 7 States: In December 2024, Vireo Growth Inc. announced a deal to acquire four single-state operators (Proper Brands in Missouri, Deep Roots Harvest in Nevada, WholesomeCo Cannabis in Utah, and The Flowery in Florida) to expand its footprint to seven states by acquiring existing operations. This acquisition, valued at nearly $400, is one of the largest M&A in the past several years. 
• Trulieve Cannabis Corp Expands into Ohio: In May 2024, Trulieve acquired Harvest of Ohio, LLC, adding dispensary licenses in a new town. 
• Planet 13 Enters Florida: In August 2023, Planet 13 Holdings announced that it would acquire Florida-based VidaCann LLC, cementing Planet 13’s entry into the rapidly expanding Florida Market. The deal was also small in the M&A world, ringing in at a hair shy of $50 million. 
• Curaleaf Holdings Go International: In April 2024, Curaleaf completed a $16 million acquisition of Northern Green Canada, a Canadian licensed cannabis producer, which allows the company to expand its Canadian footprint and enter the international hemp market in Europe and the South Pacific. 
• MedMen Enterprises Exits the Industry.: In December 2023, MedMen agreed to sell its cannabis assets in Arizona and Nevada to Mint Cannabis for an undisclosed cost, exiting those state markets entirely. 

The volume and value of M&A in cannabis may be down, but it’s far from over. Consolidation of niche products, technologies, and distressed assets through acquisitions and strategic partnerships remains strong as companies adapt. 

Role of Federal Reform (Rescheduling, SAFE Banking)

The potential of cannabis reform at the federal level has the ability to shake the foundation of the cannabis industry. Moving cannabis from Schedule I to Schedule III—or descheduling it entirely—removes the burden of IRS policy 208E, opening the floodgates to more profitable cannabis companies, and attracting the attention of institutional investors. 

Alternatively, the passage of the much-debated SAFE Act could also help M&A in the cannabis industry by providing easier access to traditional capital and removing bias from financial institutions. It would also allow consumers to use credit cards at dispensaries, a game changer for these cash-heavy businesses. 

Both of these reforms have been hotly debated for years and show no signs of materializing anytime soon. However, cannabis can’t remain stagnant at the federal level forever, and once something changes, expect to see increased interest in M&As in cannabis.

Navigating mergers and acquisitions (M&A) in the cannabis industry presents a unique set of complexities, largely stemming from the evolving legal landscape and inherent business challenges.

Regulatory Complexity & Licensing Transfers

If you thought operating within cannabis regulations was tricky, wait until you begin the process for license transfers. This industry is infamous for its sea-of-red-tape governance, and the process of merging or acquiring a business is no easier than getting a license. Regulatory compliance is a challenge during M&A and needs to be a top priority to ensure a smooth transfer. 

Each state is an island and has its own process for how license transfers for mergers and acquisitions must be handled. Understanding these requirements is critical to success here, and is complicated by continued federal prohibition of the plant. Whether you’re buying a business within your state of operation or acquiring a new location in a new state, complying with state-specific regulations, as well as federal rules, is foundational to a smooth M&A. 

Valuation & Financial Hurdles

Valuation is always tricky during M&A—sellers want to get the most value possible while buyers want to ensure they get a good deal. In the cannabis industry, company valuation is often challenging due to the lack of traditional financial data. However, this is changing as more traditional financial institutions are accepting cannabis clients 

IRS policy 280E, low stock prices, and tight cash flow also make valuation of cannabis companies challenging. Couple that with uncertainty on the federal level of descheduling cannabis, and you have a lot of grey area to wade through to appropriately value a cannabis company. 

Limitations in traditional financing options extend to buying cannabis companies, particularly for business loans. This has led to an increased reliance on alternative financing and seller notes, which can also make accurate valuation a challenge. 

Integration Risks

Post M&A integration risks are not exclusive to the cannabis industry; it’s a risk faced by every business in every industry when combining forces. Cultural clashes between the merging entities, misaligned expectations of post-merge operations, and frustration at changes percolate through a workforce, and what starts as discontent can quickly escalate into problems, particularly if communication isn’t clear from the start. 

Operational inefficiencies may rear their head post-merger, particularly with disparate state-level operations. When a company is absorbing a business from another state, there is a learning curve to ensure leadership understands the regulatory differences between states. Compliance at all levels is vital. 

Executive Liability

Mergers and acquisitions aren’t good news for everyone, and sometimes, executives can find themselves exposed to increased levels of scrutiny. Misaligned expectations, feelings of frustration or jealousy, and even suspicions of withholding information can quickly spiral from a petty dispute to a target lawsuit, exposing the personal assets of leadership. Ensuring that leadership on both sides is protected at all stages of the M&A process is important for everyone in leadership. 

Risk comes with every stage of business startup and growth but mergers and acquisitions bring about a different kind of legal risk, as leadership and responsibility change hands. Managing this risk requires a different set of risk management tactics. 

Comprehensive Due Diligence

Sure, there’s financial due diligence—but what about beyond that? Any company on the cusp of acquiring another one should go above and beyond with rigorous legal, regulatory, operational, and cultural assessments. It’s not just about what’s on the books. It’s about what happens on the ground on a daily basis: the way employees and leadership interact, a culture of compliance or silence, and leaving no stone unturned. 

This due diligence may uncover a number of things, but the main focus should be on identifying any hidden liabilities or compliance issues that may spell trouble for the acquiring leadership down the road. 

Strategic Deal Structuring

The best mergers and acquisitions happen when it’s a win-win for both parties. Strategically structuring the deal is an important piece of creating a win-win scenario. You may believe in a company’s potential, but so do its founders and shareholders, who don’t want to miss out on revenue growth down the road. Consider tailoring your deal to include incentives and aligning interests, like earn-outs, seller notes, or stock components. Addressing this head-on helps mitigate any cash-valuation pressure that may put buyer and seller at odds. 

It should go without saying, but ensure that your deal is compliant with the necessary regulations. The last thing a seller wants is to obtain a company, only to run into legal issues from the merger or acquisition process. 

Robust Post-Acquisition Integration Planning

Merging companies can be tricky: combining cultures, workflows, expectations, and management styles all present potential roadblocks that can throw a post-integration plan off track. But with strategic post-acquisition planning, these potential pitfalls can be addressed easily. 

Acquiring a company isn’t just about the products or services—it’s also about the people. Employees, even low-level ones, have expectations formed through past experiences, and upsetting these without warning can lead to upset. An integration plan should address exactly how leadership plans to combine operations and systems while addressing the concerns and expectations of employees on both sides. Doing this well can help companies retain key talent and set the foundation for successful employee relations, while overlooking the importance of smooth post-acquisition integration can set the stage for continued issues—and headaches. 

Essential Insurance Coverage

Finally, the right umbrella of insurance coverage provides a safety net for businesses, leaders, workers, and consumers, helping everyone along the way. 

• Directors & Officers (D&O) Insurance: Protects individual leadership from litigation arising from M&A decisions or subsequent performance. This policy may also include a run-off policy, also known as tail coverage for dissolved or absorbed entities and their leadership. 
• Representations and Warranties (R&W) Insurance: Can protect both buyers and sellers while in negotiations or under contract from a breach of representations and warranties, essentially transferring the risk. 
• General Liability: Essential for all canna-companies, this policy protects companies against fundamental business risks, like on-site injury. 
• Product Liability: This policy ensures continued coverage for operational risks pre- and post-merger.
• Cyber Liability: A necessary policy for all businesses at all stages, this protects businesses while integrating data systems securely.

Every emerging industry goes through growing pains, which include a large amount of expansion followed by contraction. It is not a comfort for businesses in the middle of the storm to know this, but perhaps it is to know that it will pass and the cannabis industry will stabilize eventually. M&A activity is just one measure of how the cannabis industry is faring nationally, and you can expect to see this continue to change as economic uncertainty continues. Who knows what changes the second half of 2025, and into 2026 will bring to the cannabis industry? 

Protecting your cannabis company can seem confusing; however, we’re a full-service insurance brokerage working with carriers worldwide to offer you the best coverage possible. We’re here to help! Please reach out to us today by email [email protected] or calling 646-854-1093 for a customized letter or learning more about your cannabis insurance options.