The initial wave of cannabis SPACs have largely completed their qualifying transactions producing over $5B of M&A transaction value from their $1.8 billion of IPO proceeds. Viridian expects the second wave to be equally significant with approximately $5.9B of deals announced or projected.
The graph shows IPO proceeds raised (dark green bar), total merger value (light green bar), projected total merger value (light gray bar with black outline), and the # of SPACs (blue marker) categorized by the three stages of a SPAC lifecycle: completed merger, pending merger, and pre-merger.
9 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.
The merger value for pre-merger SPACs (light gray with black outline) is expected to reach $3.8B after applying a 3x multiple to IPO proceeds. The multiple was calculated by dividing the sum of completed SPAC mergers value by total completed SPAC merger IPO proceeds.
5 of the 7 SPACs searching for mergers in the cannabis industry have raised $853 M in IPO proceeds this year, much more than the $397 M raised through traditional IPOs YTD.
But 2 of the 7 SPACs searching for targets are pressed for 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.
Completing cannabis SPAC deals has been difficult, particularly for larger US listed SPACS who are limited to non-plant touching deals. 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.
Cannabis SPACs have generally paid above market multiples for their acquisitions.
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.