The Largest Acquisition in the History of Cannabis

How one company's explicit focus on medical cannabis paid off

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Friends, 

The largest acquisition in the history of cannabis took place last week, when Irish firm Jazz Pharmaceuticals paid some $7.2 billion USD for UK-based medical cannabis firm GW Pharmaceuticals.

What’s really interesting about this acquisition is not even the large price tag, but that GW Pharmaceuticals chose to focus explicitly on medical cannabis as opposed to the adult-use market. 

There is likely an important lesson to be learned here, as the companies that are able to maintain a high level of focus and discipline are the ones succeeding in cannabis.

Medical vs. Adult-Use Cannabis

Many of today’s Canadian cannabis giants were created to service the medical cannabis market; but as soon as the opportunity arose, these large companies shifted gears to focus on the adult-use market. 

Some, like Canopy Growth, reminded its investors in 2019 that they were still focused on the medical cannabis market, with a desire to gain patents.

As soon as Bruce Lipton was replaced as Canopy CEO, however, it was clear that the medical market was no longer a priority.

This came as no surprise, given that Canopy’s largest investor is Constellation brands, a company focused on the alcoholic beverage market, whose investment in Canopy served to build a cannabis portfolio. 

Below, I will be analyzing this acquisition to understand why GW Pharmaceuticals is worth such a staggering sum given their focus on the medial cannabis market, and if the acquisition makes sense for both parties in this historic deal.

The Good

  • GW has some great IP and their ability to generate profits under the current regulations will continue to grow as they expand into new markets and diversify their portfolio by focusing on additional use cases for their products. 

  • It will take any company years to catch up with GW Pharmaceuticals, given their lead. During this period, the company will likely generate significant revenue and earn huge profits from the high price points of their products.

The Bad

  • The large profits they are currently generating are the result of the current regulations, and it’s only a matter of time until these regulations are loosened.

  • GW’s profits will likely decrease as these changes go into effect, though this assumes that the CBD you’ll be able to purchase at Walmart will be reimbursable, which is essential for medical patients who consume large quantities of CBD.

  • Jazz Pharmaceuticals has acquired GW using primarily cash to complete the purchase. For a company only valued at $9 billion USD, this is very much an all-or-nothing bet that will make or break the company, given that they have used all of their cash and more by taking on debt to complete this purchase.

A $7.2 Billion Dollar Price Tag

With the majority of the world’s largest cannabis companies now focused on the adult-use market, there remain some incredible opportunities in the medical market.

For the past two decades, this is the approach GW Pharmaceuticals has taken, and they have been duly rewarded with hefty profits in recent years, on the back of becoming the very first company to gain FDA approval for a CBD product. 

With over $148 million USD in revenue generated in Q4 of 2020, totaling over $500 million USD in 2020 alone, GW was on track to generate over a billion dollars in revenue.

Even if the revenue generated from the IP Jazz Pharmaceuticals acquired in this transaction does decline over time, there is no denying that the story of GW pharmaceuticals will go down in history as an incredible success.

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