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Accelerating Global Legalization of Cannabis Fuels Growth in International M&A Deals

March 15, 2022

By Kevin Hylton | LexisNexis Practical Guidance

The number of countries around the world that have legalized the sale of recreational cannabis products continues to grow, fueled by changing consumer attitudes regarding the health benefits of cannabis and the rising adoption of cannabidiol (CBD)-based products for treating various ailments.

“Cannabis is one of the fastest-growing industries globally,” Forbes.com reports. “In 2021, governments across the world took steps toward legalization and investors doubled down on backing the technology that is helping to propel the industry forward.”

Indeed, a February 2022 report from ResearchAndMarkets.com estimated the value of the global cannabis market at $25.6 billion in 2021 and projects that it will reach $176 billion by 2030, for a compounded annual growth rate of 24% throughout the decade.

With the accelerating cannabis legalization trend happening across the globe — and the industry enjoying rapid growth as a result — attorneys are now seeing a significant increase in Mergers & Acquisitions activity within the cannabis sector worldwide.

“Investors globally have been reaching out to us to understand what’s going on with legalization around the world and what opportunities exist to combine with other companies, so we are now starting to see actual M&A activity take place,” said Peerapan Tungsuwan, a corporate and M&A partner in Baker & McKenzie’s Bangkok office, and head of the firm’s Healthcare & Life Sciences Industry Group. “In fact, we’ve been engaged on a new assignment virtually every week for the past six months.”

To be sure, there are two global markets that are far and away the largest consumers of legal cannabis products: North America, which accounted for roughly $12.5 billion of sales last year; and Europe, which is just beginning to fully legalize cannabis but is expected to become a $37 billion market by 2027, according to Visual Capitalist.

But attorneys are now seeing increased M&A activity in the Asian region as well.

“There has been a definite uptick in M&A deals in the cannabis industry here (in Southeast Asia),” said Taro Preechabhan, a corporate partner in Baker & McKenzie’s Bangkok office who focuses on M&A transactions and life sciences collaborations. “For example, we were recently engaged by a large Thai conglomerate that was interested in investing in the hemp business now that it has become more liberalized by the government. We anticipate this type of activity to continue and in fact expand to more international investors who see growth in the cannabis market in Asia.”

Tungsuwan noted that there are important differences in the specific approaches to legalization that are being followed by various regimes worldwide, such as the categorization of hemp and cannabis products for medical, recreational or other purposes (e.g., cooking, personal wellness, etc.). Moreover, some governments are taking a very different view of importing cannabis seeds, which is permitted, versus importing cannabis products, which is still typically banned. So while the cannabis market is growing in Asia, there are still some important regulatory nuances that must be navigated by international investors seeking to explore business opportunities in the region.

“We have been working with some clients in the tobacco industry that are assessing the cannabis market and doing their background research into lucrative opportunities realized in other countries,” said Tungsuwan. “Once the liberalization (of cannabis laws) kicks in, we expect to see combination of some mid-sized startups and some large companies studying this market.”

Tungsuwan also pointed out that governments in the region have made it easier for foreign dollars to flow in and out of international banks in recent years, facilitating M&A transactions and other deals.

“In the U.S., owning a cannabis business can be very complicated when it comes to banking requirements, since marijuana is still a ‘Schedule One’ controlled substance at the federal level,” said Preechabhan. “However, in Thailand for example, the situation is very different. Our laws are well within international treaties and the legal boundaries are very clear, which makes things simple for international investors and banks.”

Tungsuwan said that she does not foresee the complete legalization of cannabis for recreational purposes throughout the Southeast Asian countries any time soon, but her team is closely monitoring legislative and regulatory developments.

I had the privilege of interviewing Tungsuwan and Preechabhan for a recent episode of our “Practical Guidance Podcast,” where we invite experts to provide insights on timely issues for legal practitioners. Listen now or download the episode regarding how the accelerating global legalization of cannabis is fueling international M&A deals.