Your Cannabis Company Was Acquired. Now What?
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The cannabis industry is beginning to undergo a period of rapid consolidation, most recently highlighted by High Times’ acquisition of Dope Magazine, and HollyWeed’s letter of intent to acquire Women Grow.
We can expect this trend to continue as the industry matures and follows the pattern of other nascent markets: An entrepreneurial spark leads many to enter a new market, seed capital gets exhausted, profitability gets squeezed, and the benefits of scale drive consolidation until the number of players ultimately finds its equilibrium. This process is underway in the cannabis industry and, given its highly fragmented current state, is likely to continue for at least several more years.
With this massive surge in consolidation, many businesses might find that the best course of action is merging with another entity. As a CEO and a founder, I can tell you this is a complex experience, but with proper expectations, it can be an exciting process that opens the door for previously unattainable opportunities -- both for the company, as well as for yourself.
Our acquisition story
In 2016, the company I co-founded with my husband, Cannabase -- the oldest and largest wholesale platform in the cannabis industry -- was acquired by Helix TCS (OTCQB:HLIX). A publicly-traded company Helix was, at the time, primarily a security company. Their interest in Cannabase was to lay a foundation for the technology and compliance branches of the business. They wanted an infrastructure that would eventually merge with the security arm to form a comprehensive “integrated operating environment” for licensed cannabis businesses, one that would be capable of scaling across the rapidly expanding legal landscape. Operationally, the Helix TCS leadership team has deep experience in frontier markets, which we believed would give us a strategic advantage as the legal cannabis industry continued to undergo rapid shifts.
Utilizing an aggressive M&A approach, Helix TCS has now absorbed several security companies and an Argentinian software development firm (Engeni) in addition to Cannabase. Most recently, we finalized a merger with point-of-sale leader BioTrackTHC, helping to create the technology, compliance and security platform that we had always envisioned.
Undoubtedly, being part of such a robust ecosystem has given Cannabase far more resources and opportunities than we could have imagined a few years ago. However, in spite of all of these advantages, it doesn’t change the fact that whether your company goes through a merger or an acquisition, everything changes. Here are a few lessons I learned along the way.
Give up control
It goes without saying that the biggest challenge that CEOs (or any other executive of an acquired company) need to brace themselves for is the loss of control. Many founders, myself included, are motivated by the desire for autonomy and the ability to maintain independent decision making. When you take the leap into a merger or acquisition, you inevitably lose some of that independence.
Redefining your role in the new combined company is an ongoing process, and one that shifts as the company matures, but -- as long as you respect the other leaders in your new, combined entity -- I believe it is a process that fosters personal development and critical self-analysis, both keys to maturing as a leader and a team member.
The key, as in all relationships, is mutual respect: If you decide to stay with the company post-transaction, it's important that you respect the team that is acquiring you and that that respect is mutual. As an entrepreneur, you are likely to be a strong personality with a lot of opinions (or am I projecting?). I’ve found that as long as I’m willing to lose some battles and stay flexible with work styles I don’t immediately identify with, my opinions still matter and I feel creatively and entrepreneurially present with the new entity. If, however, you don’t feel there is mutual respect between you and your acquirers, or you are engaging in the transaction for purely financial reasons, I would encourage you to consider not joining the new team and utilizing this opportunity as a time to make space for yourself and explore new opportunities.
Support your team
As part of the restructuring in a merger or acquisition, everyone’s roles will shift. There’s a good chance that many of your employees’ current positions are already occupied in the new entity, and they will need to find where they fit in the new merged organization.
This is a great opportunity to critically evaluate your employees’ strengths and weaknesses, and work with them to help them maximize this opportunity. Yes, they might not have the same grandiose title in the larger organization that they did in your smaller organization, but a smaller job in a bigger corporation often has greater resources, learning and networking opportunities, and financial opportunity than were previously available.
Like you, they will have the ability to be mentored by leaders at the new company with different approaches and backgrounds. They will be able to utilize their skills for a broader range of products or services, and can be challenged in a new capacity. This type of growth can often feel threatening or uncomfortable at first, but with the right leadership should be a net positive experience for everyone.
Entrepreneurship -- especially in an emerging market like cannabis -- is a fast-paced affair. When you’re a technology entrepreneur in an emerging market, you wake up feeling behind -- even when you arise at 4:00 am to get a head start!
When going through a merger or an acquisition you’re dealing with multiple companies, timelines, and organizational needs. Even when you do this well, it’s a process that needs to be executed carefully and thoroughly. A process that can feel painstakingly slow when you’re living in the day-to-day limbo of “life before the close.”
Not knowing where you’ll be in 6 months -- and knowing that that isn’t entirely up to you anymore -- is the first of many “letting go of control” exercises you’ll experience as the CEO of a newly acquired company. It’s important to be patient with the process, both before and after the close, and trust in the broader strategic vision that motivated you and your acquirer.
Realize it's a process
The good news is that allowing your company to become part of a bigger organization provides resources, resilience and capabilities that can be difficult to source organically - especially in an emerging market like cannabis. In an industry coping with an unpredictable political landscape, no access to traditional financing, and new markets opening up regularly, the ability to scale and compete can be much easier when you join forces with complementary businesses.
I chose to stay with Helix for a year after the acquisition, and then decided to step away to expand my family, learn some new skills, and broaden my perspective. I’ve now returned to the company in a different role with fresh, renewed energy. Today, my life is more balanced. I have grown professionally, and my company is thriving because we allowed ourselves to be acquired. By any measure, I believe that means the acquisition was a success.