SPACS Losing Their Mojo As Deals Get Pushed Out

SPACs (Special Purpose Acquisition Corp.) were the hottest thing going on in the cannabis industry for the past couple of years, but the buzz may be wearing off. These SPACs would raise millions and then search for a “qualifying transaction.”  In other words, the money was looking for a company to essentially buy and take public. It was an easy way for cannabis companies to get investor money and quickly become publicly-traded stocks. However, these deals frequently turned sour for the secondary buyers dampening the interest.

Plus, the millions raised didn’t sync well with the size of the companies available to be a target. For example, a SPAC may raise $100 million and then pick a company that maybe did $10 million a year in revenue. Suddenly this small company was given a very rich valuation because the SPAC didn’t have much to choose from. In the beginning, this anomaly was overlooked, but investors began to become a little more discerning. One thing unique about SPACs is that investors can pull out of a deal if they think the numbers just don’t look so great. Jumping ship at the last minute can often throw a SPAC into disarray. Another unique feature of SPACs is the tight time constraints. The SPAC has only so much time to identify a target and then execute. Being forced to add more time to the clock is also a signal of trouble.

Northern Lights

This week, the Northern Lights Acquisition Corp.  (Nasdaq: NLIT) SPAC had to push back its plan to use Safe Harbor Financial as its qualifying transaction. The vote had been planned earlier this week, but now has been pushed back to July 29 with the ability to extend even further to August 31. The business combination was approved by the company’s stockholders at the special meeting of stockholders held on June 28, 2022. Northern Lights said that stockholders who had previously submitted redemption requests in connection with the closing of the could ask that those redemption requests be reversed. In other words, if they chose to bail out of the deal, Northern Lights said they could change their minds. As of June 22, 2022, the company has received redemption requests for 11,416,205 shares of Class A Stock in connection with the Business Combination.

Ceres Acquisition

On Thursday, Ceres Acquisition Corp. (OTCQX: CERAF) announced that it was also extending its timeline to complete a qualifying transaction to December 16, 2022. The Extension was previously approved at a special meeting of the holders of Class A Restricted Voting Shares of Ceres held on June 22, 2022. Ceres’ board of directors has also approved the Extension, which is effective as of June 30, 2022. this isn’t the first-time, the SPAC has pushed out its timeline. Ceres’ final prospectus for its initial public offering was originally dated February 25, 2020, but then the Permitted Timeline was automatically extended from December 3, 2021 to March 3, 2022 and was further extended with the approval of the Class A Restricted Voting Shareholders to June 30, 2022.

Ceres was going to do a deal with Parallel, but that got called off when the company’s finances came under question. Now Ceres says that it believes that it “has identified a number of promising targets and is currently evaluating the business of these prospective targets and engaging in active discussions with an aim towards announcing an exciting qualifying transaction for Ceres’ security holders in the near future.”

 

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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