Viridian Capital Advisors pointed out this week that while cannabis SPACs have finished approximately $5 billion of qualifying transactions, there is still plenty of money that remains to be invested. Viridian said it expects the second wave to be equally significant with approximately $5.9B of deals announced or projected.
The company said in a recent note, “Nine SPAC mergers have been completed totaling $5.4B in merger value from $1.8B in IPO proceeds, 2 SPAC mergers are pending totaling $2.1B in merger value from only $270 M in IPO proceeds, and 7 SPACs are searching for a target after raising $1.2B from IPOs. Five of the seven SPACs searching for mergers in the cannabis industry have raised $853 million in IPO proceeds this year, much more than the $397 million raised through traditional IPOs year-to-date.” This confirms that the trend of using SPACs for capital raising in cannabis continues to be popular.
Of course, the drawback of SPACs is that the clock begins ticking creating stress to find an appropriate target. Viridian noted that two of the seven SPACs that are searching for companies are running out of time. Tuscan Holdings Corp II has obtained an extension until September 30, 2021 and Merida Merger Corp I has only until November 2021 to complete a merger.
Viridian pointed out that in addition to the time constraints, larger US-listed SPACS are limited to non-plant touching deals which shrinks the pool of options. “This has led 5 SPACs that started out searching for cannabis targets, to complete a merger in a different industry like Collective Growth Corp’s merger with an automotive company, and Tuscan Holdings Corp. I’s acquisition of a EV battery company.”
The lack of options for cannabis SPACs has led to premiums being paid for the few companies that fit the deal parameters. Viridian wrote, “One example is the Silver Spike Acquisition Corp purchase of cannabis software company Weedmaps for 6.8x 2021 projected revenue, while it’s closest public comp traded at 3.9x. Similarly, Mercer Park bought cultivation & retail company Glass House Group for 5.6x 2021 revenues and 28.8x EBITDA compared to peers at 3.94x and 15.7x, respectively. One counterexample is the Subversive Capital Acquisition Corp. purchase of Caliva and Left Coast Ventures valuing the entities at 1.8x 2021 revenue and 18.1x EBITDA compared to peers at 4.4x and 19.3x respectively.”
Last month, cannabis SPAC Clover Leaf Capital (Nasdaq: CLOEU) closed its IPO raising $138 million. Clover Leaf is listing on Nasdaq and focuses on Cultivation Technology, Processing Technology, Testing Technology, and Consumer Goods Technology investments. “The deal is a new twist on SPAC structure; most SPACS have included warrants for between ¼ and one share in their units,” said Viridian. The company also suggested that it is likely that Clover will need to bundle more than one acquisition in its de spacing transaction.