This Week in Cannabis Investing: Uber and Leafly Offer Weed Delivery

person holding small paper bag with marijuana leaf for weed delivery

(Image credit: Getty Images)

published 21 October 2022

Weed delivery launched on a major third-party delivery platform for the first time, as Uber Technologies (UBER) announced a strategic partnership in Toronto with online cannabis marketplace Leafly (LFLY). Using the UberEats app, customers can select the "Cannabis" category and order delivery from three retailers: Hidden Leaf Cannabis, Minerva Cannabis and Shivaa's Rose.

Uber's foray into cannabis delivery suggests continued interest from strategic groups in getting involved in the sector. Major opportunities and deals are occurring outside the U.S., which will continue until we get more federal clarity around banking. Because of Canada's more open legal parameters, Uber is likely using this partnership to analyze how to enter the U.S. market if federal legalization occurs.

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The U.S. cannabis market saw another acquisition terminated on Oct.14 after Illinois-based operator Verano Holdings (VRNOF) said it is walking away from its deal with Goodness Growth (GDNSF). The announcement isn't shocking, given the current market environment. The largest domestic cannabis companies are striving to generate positive cash flow. And a transaction like this might have been too much for Verano to proceed with given the high cost of their equity at these valuations.

This year has been a challenging one for mergers and acquisitions (M&A) globally. The pace and amount of announced deals are down significantly across the entire market, and cannabis is not immune. According to Viridian Capital Advisors, U.S. cannabis M&A volume is down 68% on 40% fewer deals. This type of environment increases the odds of previously announced deals breaking and not reaching completion.

Verano Holding's deal to acquire Goodness Growth was announced in February and contained an all-stock valuation of $413 million. Had the acquisition gone through, Verano would have gained 18 dispensaries and access to the New York market, one of the largest potential cannabis markets in the U.S. However, the freedom to free up capital from the acquisition may improve where Verano stands, as stock fell by only 1.5% on Oct. 14 versus a more than 60% decline for Goodness Growth shares.

It is hard to believe some of the historic moves happening in the U.S. cannabis industry considering the stock prices. But, as it's been said time and time again, "The stock market is not the economy, and the economy is not the stock market." On Oct. 19, Green Thumb Industries (GTBIF) entered into an agreement with Alimentation Couche-Tard (ANCTF) to add medical cannabis dispensaries to Circle K convenience stores, initially targeting a portion of its Florida locations.

Details are still forthcoming, but the opportunity seems poised to bear fruit in 2023. This development is another big step forward in the cross-section of mainstream industries seeking opportunities in cannabis and finding ways to partner. There's also good potential value for GTI in finding a capital-efficient way to increase cannabis access in Florida, where we've seen more conservative rollouts relative to peer markets.

After the news from Booker on progress with SAFE, there was another immediate boost for pot stocks and the subsequent cannabis ETFs. This trend continues to be very closely followed because of the potential value of incoming institutional capital flows and strategic groups entering the U.S., as noted above regarding Uber and Leafly. We still see potential public equity limitations as cannabis market participants wait for legislative action. It is encouraging to hear these positive comments from the legislature on addressing banking issues in the industry, but the market is demanding action for more sustainable progress to be achieved.

Morgan Paxhia is Managing Director and Co-Founder of Poseidon Investment Management. With over 10 years experience in investing and finance, Morgan has developed a deep understanding of individual company analysis, portfolio construction, and risk mitigation. This content is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing should be construed as a recommendation by Poseidon Investment Management, LLC, its affiliates, or any third party, to acquire or dispose of any investment or security, or to engage in any investment strategy or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. This content should not be considered as an offer or solicitation to purchase or sell securities or other services. Any of the securities identified and described herein are for illustrative purposes only.  Their selection was based upon nonperformance-based objective criteria. The content presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Past performance is not indicative of future results.