SPACs Archives - Green Market Report

Debra BorchardtApril 12, 2021


On April 13, at 3pm eastern, Green Market Report will be hosting a virtual event title “The State of Cannabis SPACs”. This event features Ceres Acquisition Co. CEO Joe Crouthers and Bengal Capital Managing Director Sanjay Tolia. Have SPACs pushed the valuations of cannabis companies too high? Are investors overwhelmed with too many SPACs coming on the market so quickly? So many questions – tune in for the answers. Register at


Hundreds of millions of dollars have been raised for cannabis-focused SPACs (special purpose acquisition companies) over the past year making them the hot ticket in 2020. Add to that the celebrity names attached to some SPACs and you can see the attention they are getting. SPACs draw a lot of focus, but does it make sense for the average investor to join in on them? 

While it seems like SPACs just appeared on the scene, the instruments have been around for some time and were really popular right before the financial crisis. Hard to say if history will repeat itself. After that, the popularity of SPACs faded somewhat and they didn’t really make a big comeback until 2020. For example, in 2019 just 59 SPACs were launched. In 2020, 248 SPACs were started making up 50% of the total IPO volume in the year. 

SPAC 101

SPACs have captured many headlines over the past year and most investors aren’t very familiar with the structure of these unique investments. The basic gist is that a sponsor ponies up a few million dollars to pay for the Initial Public Offering  (IPO) costs of what is called a “blank check” company. The sponsor also brings in or joins with a management team. Some of these teams have already had some cannabis experience and want to repeat a previous success. Some have a celebrity name attached to the SPAC. 

The SPAC typically has 24 months to find a company to buy or merge with, which is called the Qualifying Transaction or QT. The SPAC IPO investors often get in at $10 share with a half warrant to buy another share at $11.50. They also typically get the right to redeem their stock for cash value ($10 plus interest) if they do not like the QT. If the QT is completed, the management team usually gets 20% of the new company’s equity. In other words, the SPAC investor basically puts that $10 a share in the bank and can withdraw it if they don’t like the deal or hold on and potentially sell in the secondary market at a premium. 

Cannabis SPAC Returns Drop

Cannabis investment company Bengal Capital wrote, “What does the average buyer of a SPAC on the exchange get? They also get the right to redeem their share for $10, but no warrants. So what they are generally buying seems to be the “story” – that the SPAC sponsor and management will be successful, and the investor can join their team and profit from their success.” Bengal Capital. Bengal Capital’s Managing Director Jerry Derevyanny added, “You can see this in the cannabis SPACs from the fact that many of them trade at a significant premium to their redemption value – meaning that investors are valuing the right to “join the team” greater than the right to get $10 of cash.”

Bengal Capital also pointed out that of SPACs that merged between January 2019 and June 2020, the median percentage of IPO proceeds that was redeemed (that is the cash was given back to the holder of the share) equaled 73% – over one-third of SPACs had over 90% redemptions. According to Bengal, redeeming shareholders averaged an annualized return of 12%. Unfortunately, a year later the post-merger returns of the SPACs were down by 35%, due to these redemptions. 

Cannabis SPACs

One of the first cannabis SPACs was MTech Acquisition, whose QT in 2018 was cannabis software company Akerna (NASDAQ: KERN). Over 4.4 million shares were redeemed prior to the IPO as investors exercised their displeasure with the deal. However, the stock popped in the early days of trading and even hit a high of $72 on June 1, 2019, before settling down to trade around $10 through the summer. The stock though has struggled to maintain its value, breaking below $10 and was lately selling at $5.80. 

In December 2020, Silver Spike Acquisition Corp. (Nasdaq: SSPK) announced its agreement for a business combination with WeedMaps or WM Holding Company that would result in WeedMaps becoming a public company on the NASDAQ marketplace. The estimated post-transaction equity value of the combined company was approximately $1.5 billion and provided up to $575 million of gross proceeds through the approximately $250 million of cash held-in-trust by Silver Spike Acquisition Corp. and a fully-committed common stock PIPE of $325 million.  WMH has grown revenue at a CAGR of 40% over the last five years and is on track to deliver $160 million in revenue and $35 million in EBITDA for 2020. The company said in a statement that as a result of outsized demand, the PIPE offering was significantly oversubscribed and upsized. Just last week, Silver Spike Acquisition Corp II priced a $250 million IPO that is to be listed on the Nasdaq Capital Market and trade under the ticker symbol “SPKB.”

In January 2021, TPCO Holding Corp. (OTCQX: SBVCF, SBVQF) completed its qualifying transaction to acquire CMG Partners Inc. better known as Caliva and Left Coast Ventures, Inc. with global icon, entrepreneur, and MONOGRAM founder, Shawn “JAY-Z” Carter and entertainment powerhouse Roc Nation. TPCO said it expects pro forma revenues of $334 million in 2021. A couple of weeks ago the company reported that its unaudited consolidated pro forma revenues for the year ended 2020 were $188.7 million, a 76% increase over 2019’s $107.2 million. The unaudited consolidated pro forma EBITDA loss for the year ended 2020 was $126.1 million compared to a loss of $136.1 million in 2019. TPCO said it had $337.9 million of unaudited consolidated pro forma cash available on December 31, 2020, to execute on its growth strategy. The cache of Jay-Z has added glitz to this TPCO, but don’t expect to be partying with the media mogul if you buy shares. 

Last month, Ceres Acquisition Corp.  (OTCQX: CERAF) entered into an agreement that would result in multi-state cannabis operator Parallel becoming a public company. The investors are said to have an over-subscribed private investment in public equity (PIPE) of $225 million. The deal is expected to close in Summer 2021. The deal values Parallel (which used to be called Surterra Wellness) at an implied enterprise value of $1.884 billion with expected net revenues of $447 million in 2021. The expected pro forma cash on hand of $430 million at the close, including the $225 million from the PIPE and $120 million of cash held in Ceres’ escrow account assuming no redemptions. This company’s pedigree includes chewing gum heir William “Beau” Wrigley Jr., who is Chairman and CEO of Parallel, and Scott “Scooter” Braun, who is the Co-Founder of Ceres Group Holdings and is known for his music industry investments and ventures. 

On February 19th, 2021, Choice Consolidation Corp. (NEO: CDXX.UN.U), a Chicago-based SPAC with senior management led by CEO Joe Caltabiano, the former CEO of Cresco Labs, closed a $150 million IPO. Viridian Capital Advisors said, “Choice broke new ground by providing only ¼ of share warrant per unit versus previous SPACs units that typically contained either ½ warrant or a full warrant. Choice is a sign of how hot the SPAC rage is and is a vote of confidence in the future of the cannabis equity market: investors must believe that SPACs can earn attractive returns from acquisitions completed at current levels.”

Just a couple of weeks ago, Greenrose Acquisition Corp. (NASDAQ: GNRSU, GNRS, GNRSW) said it had entered into definitive agreements to acquire four cannabis companies, which it has dubbed The Platform. The companies are Shango Holdings Inc. (Shango), Futureworks LLC (d/b/a The Health Center), Theraplant, LLC, and True Harvest, LLC. The total initial transaction value is $210 Million with a maximum earnout of $110 million. Greenrose plans to initiate an offering of $150 million in equity and debt securities and plans to use the net proceeds for the acquisition of the Platform and general corporate purposes.

Capital Looking For Cannabis

At this point, it looks like one cannabis SPAC still needs to deploy its capital Merida Merger I, with a $130 million and a Nov. 7, 2021, deadline. The pool for potential QT’s though is getting tighter. It becomes an insider parlor game, guessing which company that is still private and is bringing in the revenue to make it a target. Some names like luxury smoking accessory company PuffCo rise to the top of the list. 

Charles Kieley, Co-Founder and Chief Operating Officer, Kings Garden believes PuffCo belongs with another luxury brand. He said, “Subversive is a potential buyer of any company that really is prominent in this space. Puffco may not be directly tied to luxury, but they are the number one hardware device maker in their category for portable concentrate consumption.  And they have a huge market share for concentrate consumption, so I can see Subversive taking interest.  I could see them being interested, again, because of profitability and the growth trajectory.” 

Even Kings Garden could be a potential target. It was founded in 2015 and is private, profitable, and has no debt. The company closed out 2020 with $84M in revenue and is leading cannabis cultivation, processing, and manufacturing company based in California’s Coachella Valley. 

With regards to new SPACs, Viridian Capital Advisors recently said, “We think keeping the size down at $100 million is smart because prices of assets have run up, and finding deals that will pass muster with SPAC investors is getting more difficult.”

In Closing

It seems retail investors would be better suited to have a short time horizon on SPAC investments. The redemption from the original investors tends to be high and the prices paid for the QT’s look to be at a premium due to the shrinking pool of potential deals. Still, there are some bragging rights to say you’ve invested alongside Jay-Z.  


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