Cannabis Capital Raises Experience Multiyear Low as Investment Focus Shifts

LOS ANGELES– The cannabis industry is witnessing a decline in capital raises, reaching a multiyear low despite ongoing challenges in California and criticism of the New York adult-use market launch. Surprisingly, investor money continues to flow into these states, indicating a shifting investment landscape.

According to data from Viridian Capital Advisors as of June 2, California led the pack in the total number of investments over the past 12 months, with 28 raises, and currently holds the third position with $294 million in invested capital. New York secured a healthy second place, with 14 transactions and $418 million deployed. However, Illinois topped the chart in terms of total invested capital, with $451.08 million raised through just five transactions. It’s worth noting that capital raises in Illinois have decreased by 64% compared to the same period in 2022.

Most states, aside from Arizona, have experienced significant declines in capital raises. Arizona observed a notable increase, with nine transactions in the last 12 months compared to only one during the same period in 2022, representing an 800% surge. However, the total investment amounted to just $100 million, placing Arizona in seventh place overall.

Viridian Capital Advisors highlighted that cannabis capital raises have hit a multiyear low, with only $1 billion closed in the first 20 weeks of the year, compared to $2.4 billion in the previous year. Interestingly, debt accounted for 61.1% of the total capital raised, a considerably higher proportion than any comparable period since 2018. Additionally, public companies have raised only 66.9% of the total capital year-to-date, down from 78.1% in the previous year.

Moving on to mergers and acquisitions (M&A), California ranked first in total transaction volume by state, recording 19 completed transactions in the 12 months leading up to June 2. Florida followed closely behind with 10 total deals, while Colorado secured seven deals with a total M&A consideration of $228.7 million, slightly behind Florida’s $271.63 million.

M&A activity has experienced a significant decline compared to the same period in 2022, except for Florida and Texas. The Lone Star state reported three deals during this time period, compared to only one in the previous 12 months.

Viridian Capital Advisors noted that there have been 53 transactions totaling $904 million year-to-date, in contrast to 93 transactions amounting to $3.6 billion in the previous year. Furthermore, the average transaction size of $17 million in 2023 is the lowest in recent years, indicating a shift towards smaller-scale deals.

The current trends in the cannabis industry reflect a more cautious investment climate, with a decline in capital raises and a shift towards debt financing. As the market continues to evolve, investors and companies are navigating through changing regulatory landscapes and emerging opportunities.