The cannabis industry has experienced fluctuating levels of M&A activity over the past few years, influenced by regulatory uncertainty, shifting consumer demand, and the evolving capital landscape. As of 2024, M&A activity in the sector remains relatively subdued compared to previous years, but industry insiders expect a resurgence, especially among smaller businesses that serve as the backbone of the cannabis economy. 

A key trend driving the cannabis M&A space is the focus on small-to-medium-sized businesses (SMBs), which have increasingly become the primary targets of acquisitions. These SMBs are often seen as more agile and better equipped to operate in fragmented regulatory environments. According to a recent analysis, SMBs are likely to fuel the next wave of consolidation, with larger companies seeking to diversify their portfolios by acquiring smaller operators that have established strong footholds in niche markets.

While capital raises and M&A in the cannabis space were down significantly in 2023 and early 2024, experts are optimistic about a rebound in 2025. Improved federal legalization prospects, state-level regulatory developments, and a more favorable capital market outlook are expected to encourage more dealmaking. The cannabis industry is also becoming increasingly attractive to private equity and venture capital firms looking to capitalize on distressed assets and underperforming operators.

Another driving force behind cannabis M&A is the push for vertical integration, where companies aim to control the supply chain from cultivation to retail. As competition intensifies and regulatory pressure mounts, vertical integration offers operators a way to increase margins and streamline operations. Larger multi-state operators (MSOs) continue to target vertically integrated businesses, further consolidating the market.

Despite recent challenges, the outlook for cannabis M&A remains positive. The combination of rising consumer demand, increased investment interest, and evolving regulations is likely to spur renewed dealmaking activity in the coming years.