Two of Canada’s biggest cannabis companies have cancelled their plans to unite, after weeks of speculation. Aleafia Health Inc., and Red White & Bloom had been in talks about a merger that would have seen the two become a major international force in the cannabis industry. However, the allure of a potential billion-dollar partnership is no longer on the table.
1. Aleafia and Red White & Bloom Drop Merger Plan
Aleafia Health Inc. and Red White & Bloom Brands Inc. have dropped their merger plans after entering into a binding letter of intent to merge only last month. The two companies announced that they had mutually agreed to discontinue their pursuit of an amalgamation.
The merger would have united Aleafia’s medical cannabis operations with Red White & Bloom’s adult-use retail brand footprint in the U.S., with the aim to build a diversified global cannabis company. With a wide reach of brands, products, and medical cannabis clinics, the platform could have added to the already well-crafted offerings.
- Red White & Bloom Holds Onto Assets – The two companies have agreed that neither party will incur any financial obligations to the other as a result of the terminated letter of intent, meaning Red White & Bloom will hold onto the assets it has currently.
- Focus on Market Needs – The companies stated that they have no plans to stay involved in discussions of a potential merger and are instead going to refocus their efforts and investments and concentrate on their respective markets.
2. Reasons for Abandoning the Merger
Ultimately, the merger agreement could not be reached due to a few factors. First, both sides could not come to terms on the amount of the merger cost and the speed of implementation. Moreover, the parties weren’t in agreement on how much of the profits each would receive.
At the same time, research showed that the operational costs of the organizations would remain the same after the merger, which made the overall effort of combining the businesses exceptionally challenging. Attempts were made to reconcile the differences between the parties, but in the end, they could not come to a consensus on the details of the merger.
- Financial cost and profits disagreement
- Operational costs remained the same
3. What’s Next for Aleafia and Red White & Bloom?
Growth Predicted to be Substantially Positive
Aleafia and Red White & Bloom have both made optimistic predictions for 2020. Aleafia is predicted to generate an additional $95 million from the sale of medical cannabis products, pushing its annual growth rate to a new record-high. Additionally, their agreement with Apollo Applied Research will expand their presence in the health and wellness markets, seeing an increased focus on cannabis treatments.
Red White & Bloom’s presence in the legal cannabis market is also expected to expand rapidly over the coming years. With the recently announced partnership with Grassroots Cannabis, they are looking to nearly double their current retail presence, providing products to customers in a number of U.S. states. Furthermore, they plan to announce further expansions into the Canadian market, setting up a strong and sustained foothold in North America’s marijuana industry.
It’s clear that both Aleafia and Red White & Bloom have an extremely bright future ahead. Building solid partnerships across the industry will undoubtedly enable them to continue their growth well into the future, providing quality products and services to customers.
4. Cannabis Market Volatility: An Ongoing Scenario
The cannabis industry is shrouded in uncertainty, making it difficult for investors to know how to best approach the market. As the sector is new and rapidly developing, standards, regulations, and policies vary between states, countries, and continents. The change in cannabis market sentiment can be dramatic and swift, leading to extreme volatility. Here are 4 factors behind cannabis market volatility:
- Government Policy: Regulatory changes at the local, provincial, or national level can dramatically impact the market. For example, legalization of cannabis in one jurisdiction could lead to significant market shifts in another.
- Taxes and Fees: Many marijuana businesses carry steep taxes and fees, making them unprofitable or unattractive to potential investors. The introduction of new taxes and fees poses a risk to the market.
- Corporate Consolidation: The cannabis industry has seen a wave of corporate mergers and acquisitions, resulting in large companies dominating the market. This has led to increased volatility as smaller companies struggle to compete.
- Supply and Demand: The demand for cannabis products varies among jurisdictions as laws and regulations change, leading to varying levels of supply. When demand exceeds supply, prices rise, causing market swings.
Though it’s difficult to predict, the cannabis market is likely to remain volatile in the near and more distant future. Investors are urged to pay attention to developments in laws, regulation, taxes, and other factors to ensure they are as well-prepared as possible.
The cannabis sector is ever-evolving as the leaders seek to consolidate their power and strength to create a more unified and powerful industry. The current news of the scraped merger between Aleafia, Red White & Bloom is just another example of the complex forces at play – and the opportunities yet to come as players continue to jostle for their stake in the ever-expanding industry.