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  1. Jennifer Lee said she’s already seeing the pace of M&A picking up.
  2. Dellazizzo, Lift & Co.’s Dellazizzo expects up to half of existing pot firms to disappear within a year or two.
  3. Companies that attract buyers will be those with strong data and retail fundamentals.

In the rush of mergers expected in the coming year, valuations will be based on more than physical cultivation and retail assets, according to Jennifer Lee, head of Deloitte’s consumer advisory and analytics practice for cannabis.

“What differentiates you from another grower is that you have a direct-to-consumer relationship,” Ms. Lee told an audience attending the Lift & Co. Cannabis Expo in Vancouver. “You have data sets that are proprietary, you have a strong team of analytics, individuals that can mine the data.”

Ms. Lee said she’s already seeing the pace of M&A picking up, as companies aim to “get scale in order to make the economics work.” Many smaller companies will be forced out of the industry in the process of consolidation. The ones able to attract buyers at reasonable valuations will be those with strong data and retail fundamentals, Ms. Lee said.

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“Retail is an industry that has weathered a lot of changing consumer behaviour. Cannabis is another category within retail; so therefore to win... you need to have brand experience, you need to have a strong value proposition, and you need to have the data,” Ms. Lee said.

Simply putting an undifferentiated product into a crowded market with significant advertising restrictions will not get you very far. You need to understand your competitive set, and interact with customers accordingly, she said. “If you decide it’s health and wellness, that takes you down a whole different route than if you want to go retail; so it all depends on where do you think you're going to play.”

This was echoed by Lise Dellazizzo, Lift & Co.’s vice president of data and strategy, who was speaking on the panel with Ms. Lee.

“Up to at least 50 per cent of the companies that are emerging now in this sector, will no longer exist, most likely, within a year or two,” Ms. Dellazizzo said.

“The companies that are going to survive, a lot of this will depend on leadership. They're going to need a very solid business model. They're going to need to know who their buyer base is, they're going to have to understand who to talk to, how to talk to them, what their profile is, how to reach out,” she said.

All of this Canadian consolidation is happening against the backdrop of explosive growth among U.S. cannabis companies, and increasingly aggressive plays by large multinationals, both Ms. Lee and Ms. Dellazizzo said.

"You’re going to see globalization, huge amounts of globalization,” Ms. Lee said. “That’s where I’m spending all my time today: globalization of brands, globalization of brands coming into Canada, and big organization starting to say, ‘how do I roll up the industry, and where am I going to find enough brands, enough assortment that’s going to really hold on to my customer?’ The fight is going to be for the customer’s attention.”

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