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A year ago, Aurora Cannabis Inc. was wrapping up its hostile bid for CanniMed Therapeutics Inc. The marijuana grower’s blockbuster $3.2-billion all-share takeover of MedReleaf Corp. was still months away, and Bay Street buzzed with rumours of cannabis companies buying one another in an attempt to scale up for recreational legalization.

A year later, the deal flow has shifted dramatically, thanks to Constellation Brands Inc.’s $5-billion investment in Canopy Growth Corp. and Altria Group Inc.’s $2.4-billion investment in Cronos Group Inc.

Cannabis deal makers are now focusing on consumer packaged goods partnerships and international acquisitions, while fewer large Canadian cannabis producers seem interested in acquiring one another.

“When [Constellation] came in and put that kind of capital on the table," said Steve Ottaway, managing director of investment banking at GMP Securities LP, everybody realized "maybe this really is a new consumer product group.”

The M&A conversation today focuses on two trends: global consumer packaged goods (CPG) companies partnering with Canadian licensed producers (LPs), and Canadian firms using their cash-rich balance sheets to go shopping internationally.

"The Altria investment in Cronos ranked up there with the Constellation investment in Canopy as being a bellwether event,” said Patricia Olasker, a partner in corporate, mergers and acquisitions at Davies Ward Phillips & Vineberg LLP. “The excitement around vape [Altria invested US$12.8-billion in e-cigarette maker Juul around the same time], the skills of the tobacco industry in lobbying and managing government relations, all of those things made that a kind of magical combination.”

Few large companies are being as aggressive as Constellation or Altria. However, there are plenty of discussions happening behind closed doors, according to Craig King, managing director and head of diversified industries at BMO Nesbitt Burns.

“Those players we’re aware of are at various stages of diligence – from the early stages where they’re getting to know players, to advanced discussions with some of the existing cannabis players around investment, partnerships or joint ventures,” Mr. King said.

Instead of massive equity investments, many of these partnerships will be smaller, product-focused joint ventures, similar to Molson Coors Brewing Co.'s cannabis-beverage partnership with Hexo Corp., said Rishi Malkani a partner in M&A advisory at Deloitte Canada.

“At least some of the clients that we’re advising are probably going to take a more surgical and measured approach and focus on companies they actually want, rather than going and buying the whole vertically integrated LP,” Mr. Malkani said.

As global CPG companies manoeuvre into the cannabis space, Canada’s large producers are on a buying spree of their own, using their access to capital and high relative valuations to acquire international assets.

Some companies are doing medical-marijuana deals in Europe or buying low-cost growing assets in Latin America. Over the past few months, there has been a particular focus on the United States, where the federal government legalized hemp-derived cannabidiol in December. (CBD is the non-intoxicating cannabinoid increasingly popular in health and wellness and cosmetic products).

In October, Canopy spent more than $400-million, mostly stock, to acquire a hemp-focused research firm in Colorado called Ebbu Inc. Two weeks ago, Tilray spent around $400-million, cash and stock, to buy Manitoba Harvest, a Canadian hemp food company that is pushing into the U.S. CBD market.

While investment in U.S. CBD assets has become easier, Canadian companies still have a difficult time investing in marijuana companies in the United States, where cannabis remains illegal at a federal level. For Canadian firms, the main problem is stock-exchange listing rules. The Toronto Stock Exchange, where many of the largest LPs are listed, does not let listed companies do business in jurisdictions where cannabis is illegal at a national level.

“Everyone is looking at how to get into the U.S. market without blowing up their listing, and looking at structures that will work. They’re not easy to do ... and that’s why we’re not seeing a deal a day, but those deals are getting done,” Ms. Olasker said.

M&A among Canadian LPs – producers buying one another for cultivation assets – has slowed noticeably. Few are expecting deals on the scale of Aurora’s MedReleaf acquisition, although midsize LPs are beginning to team up to acquire scale and stay relevant as the industry starts to commoditize.

Less than six months into recreational legalization, the cannabis capital markets are already stratifying, with the top four or five LPs trading at much higher multiples than everyone else. This will ultimately spur on M&A activity, said Patrick McBride, head of origination at Eight Capital.

"There's a real arbitrage in valuation gaps between the haves and have nots in Canada; same thing with Canada and the U.S., there's this huge arb. And that's something that I think over time is going to become more and more topical, because at the end of the day if you can go and do M&A that is seriously accretive for you, you're going to do it,” Mr. McBride said.

With files from Alexandra Posadzki