Business & Investment

SPAC sends hundreds of millions of dollars to the U.S. cannabis industry through acquisitions

Two Cannabis Special Purpose Acquisition Companies (SPAC), Silver Spike Acquisition Co., Ltd. And Subversive Capital Acquisition Corp.The recently announced transaction is over $ 2 billion, but the other two SPACs have an additional $ 280 million and need to be rolled out next year.

The closing of the Silver Spike and Subversive deal in the first half of 2021 will inject liquidity into the entire US cannabis industry. This is because both companies plan to use $ 662 million in cash on hand and some of the listed currencies for consolidation. A small operator of a technology company related to California and marijuana.

As with all investments, especially in the case of SPAC, understand the underlying business being purchased, determine the credibility of the financial statements (which may not yet be audited), and with the insights of stakeholders. Incentives need to be evaluated.

Most traditional companies go public on initial public offerings (IPOs), but a federal ban on cannabis has forced businesses into less traditional financing methods – Including SPAC..

Still $ 280 Million in SPAC for Cannabis

Under SPAC, the sponsor responsible for finding the transaction must deploy the capital raised to receive the shares of the new company by the deadline. Otherwise, you will have to return the funds raised to shareholders.

This sets an incentive for sponsors to complete a deal. This is why investors need to pay close attention to the underlying details, even for expensive transactions.

For example, Collective Growth Corp. consistently states that it targets the US industrial cannabis supply chain. This includes the latest November 16th. With quarterly financial filing – But in the end, we turned our attention to self-driving technology companies.

Cause of shift According to Jeff Whaling, president of a company based in Austin, Texas, wasn’t there enough companies in the hemp space to meet SPAC’s revenue, valuation, and accounting requirements?

Two pending transactions between SilverSpike and Subversive Acquisition Corp. create a $ 662 million publicly traded company that combines strategies for acquiring and consolidating cash, public currencies, and other operators. I will.

Of the 10 cannabis-interested SPAC listed in March, Only two need to develop capital.

  • Green Rose, $ 150 million, deadline August 13, 2021.
  • Merida Merger I, $ 130 million, deadline November 7, 2021.

Destructive and TPCO plans California integration, price pressure

By combining the operations of Cariba and left bank Subversive Capital will work with Shawn “Jay-Z” Carter brand Monogram and his talent agency Roc Nation to generate $ 185 million in revenue in 2020 and nearly $ 600 million in 2022. I plan to grow into.

After completing the transaction scheduled for January 2021, the company announced that it will have $ 565 million in cash. “Aggressive M & A” strategy Aim for “bolt-on inorganic growth” to “expand market share”.

This makes sense given that legal firms in the California market remain fragmented, undercapitalized and under-penetrated compared to more mature markets.

However, unacquired California operators face a well-capitalized, vertically integrated competitor. The competitor plans to expand pharmacies, shipping and new brands and use its vertical integration to launch products at lower prices while increasing margins.

In that presentation, the new parent company, TPCO Holding Corp. Launch overview In the second quarter of 2021, we developed Value Tier’s Ark products, which were sold at a 20% discount, but we are expanding the company’s profit margin by earning gross profit across the supply chain.

Can Weedmaps, a tech investor’s dream, come true?

Silver Spike uses Weedmaps, an advertising and technology platform for California-based cannabis retailers, to generate $ 160 million in revenue in 2020 and $ 440 million in 2023. intend to do something.

At first glance, this deal is what technology / growth / cannabis investors have dreamed of. Nasdaq TradingProvides exposure to the growing legitimate US THC industry through a dominant, large-scale, profitable (and even positive free cash flow) advertising technology platform, touch-free, plant-free, Debt-free investment method.

The real question for investors is whether it can drive profit and margin growth. Through the strategy it outlined In a recent presentation of the company:

  • New products including WM Business Package scheduled to be released on January 1, 2021.
  • “Performance-based” pricing for ad listings.
  • Acquire additional dispensing customers.

There is also Ongoing investigation Past practices by the US Department of Justice regarding advertising for Weedmaps unlicensed businesses.

The company said it had removed all unlicensed businesses from the platform and excluded revenue from current and future estimates, but until the investigation was completed, regulators would create new debt and cash on the balance sheet. There is still the possibility of consuming.

So what about valuations?

The table below outlines the closing price on December 21st and multiples of transactions based on the company’s own financial goals. Basically, it represents the valuation when a set goal is achieved.

This table shows two ways to calculate corporate value.

Traditionally, corporate value is market capitalization plus net liabilities (or net cash deducted), and on the premise that a company does not need surplus cash to operate, “net cash is deducted from EV. It is labeled “Takemono”.

However, future quotes appear to include future acquisition strategies, so net cash is not really overkill and is needed to support the company.

This valuation is represented by the second line, “Cash for Acquisitions,” which has the net effect of increasing the valuation.

TPCO Holding trades at a discounted price to US-focused operators given the current margins declining, and 2022 EBITDA considers much stronger growth and margin expansion for the year And trade at a big discount price.

Weedmaps valuations are not low in short-term estimates, but valuations are lower than the name of the software as many technologies / services.

In addition, EBITDA is traded at a discount of about 40% compared to other subsidies. GrowGeneration Corp.

Colorado-based Grow Generation is in another business, hydroponics on cultivators, but both are one of the few public stocks that can provide investors with exposure to growth in the U.S. cannabis market without touching plants. It is one.

Like any growth story, valuations increase with good results and good runs, and collapse with bad results and bad runs.

Execution is driven by the method and reason for the outcome, and ultimately the stakeholders, strategy, and underlying business. As a result, investors must always perform due diligence.

Mike Regan is the founder of MJResearchCo And regular contributors Marijuana Business Daily..He can reach at Or directly [email protected]..

SPAC sends hundreds of millions of dollars to the U.S. cannabis industry through acquisitions SPAC sends hundreds of millions of dollars to the U.S. cannabis industry through acquisitions

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