A wave of consolidation is underway in the cannabis sector.

In July, Canadian giant Aurora Cannabis Inc (NYSE: ACB) acquired its industry peer MedReleaf for the U.S. dollar equivalent of $2.45 billion — the largest deal in the industry’s history.

Earlier this month, iAnthus Capital Holdings Inc (OTC: ITHUF) acquired MPX Bioceutical Corp (OTC: MPXEF) in an all-stock deal valued at around $637 million. iAnthus operates licensed facilities to cultivate, process and sell marijuana in several U.S. states.

Benzinga talked to iAnthus CEO Hadley Ford about the latest acquisition, the company’s strategy for the future and their take on the cannabis industry in the U.S. and around the world.

Why The MPX Acquisition Made Sense

The acquisition of MPX comes at a time when both stocks are “pretty well undervalued,” in Ford’s view. Shareholders of both companies will benefit from the combination, the CEO said. MPX shareholders will receive a premium of around 31 percent.

Under the terms of the transaction, each MPX shareholder will receive 0.1673 shares of iAnthus, which translates into $1.28 per share. At the same time, iAnthus will control the company and hold four of the seven board seats.

Ford said 31 percent is not a large premium to pay.

" ... When you look at it from a control premium perspective and you look at the other deals that have been done, a 30-ish percentage is the typical premium for control.”

The three keys to success in the North American cannabis space at this moment are footprint, capital and people, Ford said.

"They [MPX] check the box on all three."

In this way, iAnthus is able to significantly expand its operations with the purchase of MPX. The combined company will have 56 retail locations and 14 cultivation and processing facilities in 10 states. The deal gives iAnthus access to markets in Arizona, Maryland, Nevada, California and Massachusetts.

The 10 states where the new company will operate are expected to generate $16.2 billion in annual cannabis sales by 2022, according to ArcView Market Research and BDS Analytics.

The acquisition brings more to iAnthus than an expanded footprint.

Capital And People

Ford said he expects investors to find the combined iAnthus and MPX to be appealing. Both iAnthus and MPX are structured to be publicly traded and their combination should result in one of the most widely traded companies in the U.S., he said.

“All these other big private companies that are going public, they have a massive overhang. Sometimes 80 percent or 90 percent of their share structure is still held in private hands," the CEO said. "Those guys are going to want liquidity at some point. And when they start heading for the exits, there is only one direction their stock is going to go. Our view is that if you are going to do all that hard work, you want your stock to go up."

The CEO said he's excited for the influx of talent.

"We get [MPX COO] Beth Stavola, the No. 1 woman in Canada,” Ford said.

Cannabis Competition Is A Matter Of M&A

When it comes to competition, Ford doesn’t expect a fight for consumers among cannabis companies.

“The way I look at it: there's 360 million cars and there's like 10 gas station [chains]. So, we could call the others competitors, but we are not really,” he said.

The competition is largely found in mergers and acquisitions, Ford said

Both the iAnthus and MPX teams have a long history of M&A. Earlier this year, iAnthus bought the remaining 20 percent of Pilgrim Rock Management, which gives it full ownership of the intellectual property licensing; professional and management services; real estate and equipment leasing related to Mayflower Medicinals, a Massachusetts nonprofit with two provisional licenses to operate marijuana dispensaries. It also has acquired Citiva Medical, which holds a vertically integrated medical marijuana license in New York.

“Our strategy is to expand and have a national footprint. There is no way any company can apply in every state and win in every state,” Ford said.

So far, iAnthus has used acquisitions to obtain exposure to cannabis markets in New York, Florida, Vermont and Colorado.

No International Plans

At the moment, iAnthus is not seeking a presence in other countries.

The non-U.S. assets of MPX Bioceuticals will fall under a separate company, MPX International, led by Scott Boyes, MPX Bioceuticals' current CEO, chairman and president.

"Boyes and his team are going to pursue an international strategy around brand licensing and brand production,” Ford said.

An international expansion is not the right move for iAnthus now, the CEO said; instead, the company is focusing on its U.S. footprint and aims to build a leading brand that could later be exported.

“We can always enter international markets through an iconic brand. There is a long history of the U.S. generating great brands and exporting them overseas. So, I don't need to have a big growth facility in Dusseldorf. I can come in five years from now and say: 'hey, do you want the No. 1 brand of the United States in your store?"

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Photo by Javier Hasse.