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Big business is coming for cannabis. Huge multinationals such as alcohol giant Constellation Brands, which owns a stable of major wine, beer, and spirits; and Altria, Marlboro's parent company, are already pouring billions of dollars into the industry in Canada.

Those are just the glimmerings of what many insiders believe will happen if and when the U.S. finally legalizes cannabis. They predict a feeding frenzy involving huge investors, countless mergers and acquisitions, and the loss of some current cannabis companies.

Smaller businesses, which have traditionally been the backbone of the cannabis industry, will have to adjust to survive in this new world.

It's Already Started

The last few months have seen some big moves in the cannabis world with Constellation Brands investing $4 billion in Canada's Canopy Growth Corp., the world's largest cannabis company; Altria plunking down $1.8 billion for a 45 percent stake in another Canadian company, Cronos Group; investors rushing to buy marijuana stocks; and large Wall Street brokerage firms such as Piper Jaffray beginning to cover cannabis producers, as CNBC has reported.

“We're already seeing a glimpse of this happening — big business putting their dollars where their intentions are,” said Jessica Velazquez, a CPA and partner in Indiva Advisors, a financial services firm for cannabis businesses. “They're already in the shallow end of the pool and are looking to see what the deep end looks like.”

Other corporations may not be making any direct moves into cannabis, as of yet but are admittedly watching the market closely, waiting to see which way the wind blows on the federal level. In December 2018, James Quincey, Coca-Cola's chief executive, told CNBC that the company was eyeing the market but hadn't entered yet.

“It needs to be legal, it needs to be safe, and it needs to be consumable,” he told CNBC.  “It's not there yet.”

What it Might Look Like

Many industry experts have said that lifting the federal cannabis prohibition is only a matter of time, at which point the industry will see rapid and massive consolidation, according to Velazquez.

Cannabis companies that already have large market shares in one or more states would likely move quickly to seek an initial public offering or become a public shell company, according to Lewis Koski, co-founder of consulting firm Freedman & Koski, which helps clients such as state governments establish cannabis regulations.

For large corporations not already in the cannabis industry, political and bureaucratic hurdles could stretch investment timelines, even post-prohibition, because the industry likely will be “managed, monitored, administered, and enforced through states,” which control who gets licenses, Koski told Weedmaps News.

Shawn Honaker, founder and owner of Yeti Farms, a sun-grown cannabis company in Pueblo, Colorado, said many mid-sized companies unable to compete in the new market could be wiped out after federal legalization, while larger, more successful cannabis firms, could be more attractive purchase targets of bigger corporations.

“My advice to everyone in the game is, if anyone shows up and offers you a number you'd be willing to take, I would take it, if this isn't what you want to do for the rest of your life,” said Honaker, who has been in the cannabis business for 14 years.

There still will be a market for mom-and-pop operations, a boutique industry that could retain between 15 and 20 percent of the market, according to Honaker. As an example, he mentioned Earl's in Leadville, Colorado. “People drive all the way to Leadville, Colorado, the highest incorporated city in the United States, all the way up that mountain because Earl's grows the fire. Earl's will have a following forever,” Honaker said.  

Boutique, High End, Brand Loyalty

The smaller cannabis companies may be the ones that come out ahead if they can command brand loyalty, offer unique, high-end products, or find some other niche, something comparable to a microbrew or a top-shelf liquor, said Shanita Penny, founder and CEO of the cannabis consulting firm Budding Solutions. Penny sees the opportunity for a diverse mix of businesses that consumers are able to support, whether they're looking for a “no frills” product at a lower price point or something unique with a higher price tag.

Apart from the market-driven aspects of the industry, Penny said regulators have “an opportunity to balance the large companies coming in, holding some spots for the small companies, and encouraging partnerships between the two.” While she believes encouraging the industry to develop small businesses is vital, accountability measures would have to be built into the programs to ensure that the larger companies didn't take advantage of the smaller ones.  

For the companies looking to “sell and then ride off into the sunset” the new cannabis landscape will be a good one, according to Penny. “These big companies aren't going to come in when federal legalization happens and try to start over from scratch,” she said. “They're going to go out and acquire all the things that they want. And every little operator that can get them closer to that goal is going to become a part of these powerhouse companies. That's why I'm excited. We're going to see innovation, development, and increased access.”

Smaller companies that want to remain small and privately held, need to partner with like-minded companies to create a network that is “able to transact among themselves,” according to Velasquez.

In this new, potentially corporate landscape, smaller players will be able to be involved, Koski said. He pointed to liquor and casino gaming laws as examples of how regulators could help level the playing field for smaller businesses. In those industries, regulations limit the number of storefronts a company can own and the number of gaming licenses they can hold, which allows smaller businesses to still have market opportunities.

“I think it's great if you have small, medium, and large businesses that are able to participate in the cannabis industry,” Koski said.

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