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Welcome to this inaugural edition of the Parts and Specialist newsletter, where we focus on the cannabis industry: a business sector whose growth (pun intended) continues to excite and at times befuddle investors and several key players. So, stay tuned as we begin with a quick snapshot of the sector’s competitive landscape and follow it up with  some exciting market updates.

The Big Fish

Right from the days when talks of cannabis legalization were in their early stages, there have been few names that have become almost ubiquitous to the business parlance. The podium is donned by Canopy Growth, Aurora Cannabis, and Cronos Group (ranked by market capitalization). Then there are also other big names such as: Tilray, Aphria, Hexo and CannTrust Holdings. To say that the Canadian cannabis market has come a long way would be an understatement; in 2018 alone, the industry raised close to $13.8 Billion and saw more than 300 M&As. While industry experts expect the initial teething troubles to prevail for some more time, the overall outlook is fairly positive. The industry is gradually making strides towards becoming an integral part of the Canadian economy and generating jobs in smaller towns: where many of these Licensed Producers (LPs) have their production bases.

Deal of the month
Several industries see frantic growth in the initial stages when the entry barriers are not extremely prohibitive. However, market forces eventually nudge them towards a more consolidated business environment characterized by a lot of flux in the M&A sphere. Case in point: Quebec based Hexo Corp’s acquisition of Oakville’s Newstrike Brands Ltd for an all-stock takeover of $263 million. Interestingly, Newstrike brand is backed by Canadian rock band Tragically Hip, whose songs have famously inspired some of their pot strains. This deal is a shot in the arm for Hexo, providing it with overall 150,000 kgs of annual capacity, 1.8 million sq. ft. of cultivation space and increased access to 8 provinces. Top execs at Hexo claim that the deal will boost the projected net revenue to an ambitious $400 million by 2020, which is a big leap from the earlier figure of $233 million. The production upgrade could also help Hexo to look beyond the
Canadian market and scale up for forays into several LATAM & European countries that are on course to legalize cannabis for medicinal or recreational use.

The Game Changers: Industry 2.0

We now shift our focus to the emerging ecosystem of ancillary firms, supporting the LPs through technology-based innovations. Seattle based start-up cannabis analytics firm Headset is one such name that recently grabbed headlines after announcement of an alliance with Deloitte and Nielsen to serve the Canadian cannabis market. The partnership was forged with an aim to provide solutions that allow LPs get insights and market intelligence to better gauge consumer behavior, fine-tune pricing and marketing strategies, and to support M&A activity. Companies like Headset will set the tone for the next phase of this industry by providing necessary tools to reduce costs and optimize supply chains, both factors that are imperative to negate some of the existing challenges on supply side.

Amitoj Singh
Metro Supply Chain Group