Private equity investments in the North American cannabis sector were at their lowest since at least 2019.

The aggregate value of deals in the sector plunged 79% to $796 million in 2022 from roughly $3.82 billion in 2021. The number of deals also fell by almost half to 32 during the same period, according to S&P Global Market Intelligence data.

The numbers appear to be set for a further decrease in 2023, with only six transactions totaling $18 million in the first quarter.

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The slowing activity is expected to remain the theme in 2023 largely because of the continuing absence of federal cannabis legislation.

"The biggest thing is that for the most part, the people that aren't touching the space yet, the institutions still are waiting for legislation," Merida Capital Partners LLC co-founder and Managing Partner Mitchell Baruchowitz told Market Intelligence.

Merida invests across different cannabis-related verticals, including cultivation technologies, products and services. The firm is also looking at medical healthcare-related insurance reimbursement.

"There's going to be legislation around insurance reimbursement in some states, and therefore we want to make sure that we're invested deeply in the infrastructure around that," Baruchowitz said.

Uneven legislation

At the end of 2022, cannabis was legal for adult use in 22 US states and was legal for medical use in 39 states, according to a report from New Frontier Data, a portfolio company of Merida.

Based on a study of state legalization efforts, the report identified nine states that are likely to legalize adult-use cannabis and another nine states that could legalize medical use prior to 2030.

US Health and Human Services Secretary Xavier Becerra and Attorney General Merrick Garland are reviewing how cannabis is classified under US federal drug laws.

Smaller deals

There were only two deals in the North American cannabis industry that surpassed the billion-dollar mark over the last four years. The transactions are funding rounds completed in 2021 for GoBrands Inc., which does business as GoPuff. The Philadelphia-based company provides delivery services for consumer goods, including cannabis products.

In March 2021, GoBrands raised $1.15 billion in its series G round, which saw participation from returning investor SoftBank Vision Fund LP, a fund managed by SoftBank Investment Advisers (UK) Ltd. GoBrands also secured capital from new investors, such as Eldridge Industries LLC and Reinvent Capital LLC.

In its series H funding round, completed just about four months after the series G, GoBrands collected $1 billion. New investors included Blackstone Inc. and UK-based Hedosophia Group Ltd. SoftBank Vision Fund also joined the round. GoBrands was valued at $15 billion after the investment round, according to Market Intelligence data.

WelCan Capital, Merida and Delta Emerald Ventures were among the most active firms in the sector in 2022, having participated in three transactions each.