Cannabis experts expect multi-state operators to use M&A to create national brands in next two years

There has been much consolidation in cannabis over the last several years, but industry experts say they expect national brands to emerge in the US via M&A among multi-state operators (MSOs) in the next two years.

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Once US federal legalization happens, Brent Johnson, managing partner of the Hoban Law Group, a full-service firm that specializes in cannabis, said he expects many companies with US operations that touch the plant and are listed on the Canadian Securities Exchange and OTC Markets Group to move to the NYSE, Nasdaq and Toronto Stock Exchanges. Currently, companies that have US operations that touch the plant cannot list on those three exchanges.

Because of the US federal government’s prohibition of marijuana, making moving product across state lines illegal, MSOs often look to M&A to build scale more quickly and cheaper than doing so organically, Johnson said.

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As laws change on cannabis, it will get easier to do deals. Section 280E of the Internal Revenue code, Johnson said, prohibits businesses from deducting many operational costs, like rent and salaries, associated with the sale or distribution of schedule I or II substances, making it more difficult to value companies. Marijuana is a Schedule I controlled substance.