Jazz Pharmaceuticals’ $7.2-billion purchase of GW Pharmaceuticals last week is the biggest tie-up yet for the cannabis industry. And it’s probably just the beginning.

The blockbuster deal, which dwarfs Tilray Inc. and Aphria Inc.’s $3.8-billion merger as well as Constellation Brands Inc.’s multibillion-dollar investment in Canopy Growth Corp., shows the growing interest in pharmaceutical-grade cannabinoids. With big money flowing into this market and the broader industry, it also portends more major deals ahead.

“Capital is back in the cannabis sector,” Bill Doran, a partner in Benesch’s Chicago office specializing in mergers and acquisitions, said last week.

After a financial drought for even some of the biggest multistate players, activity is heating up just as the march toward U.S. legalization — at both the state and federal levels — picks up pace, creating a perfect environment for an M&A boom. The big question now is where those deals are likely to happen.

Doran predicts California will be a key. Despite being difficult to evaluate because of the persistence of the black market, there are a lot of small, promising brands with loyal followings.

“Multistate operators that aren’t there already will set their sights on California,” he said. “It’s by far the biggest market in the country, and it eclipses the entire Canadian market from a demand perspective.” [Read more at Los Angeles Times]