Transactional Activity: Week 26 ended June 26, 2020 saw a higher dollar volume but fewer number of transactions vs. the prior week of this year and a sharply lower dollar volume and number of transactions vs the prior year period. We recorded 5 capital raise transactions totaling $32.5 million, vs. 13 transactions totaling $235.4 million during the same week in 2019. Average tranche size was $6.5 million this week, vs. $18.1 million in the prior year period.
Largest Cap Raise: Aurora Cannabis Inc. (TSX: ACB) (NYSE: ACB), and Alcanna Inc. (TSX: CLIQ) jointly announced a bought deal, short-form prospectus offering for aggregate gross proceeds of C$27.6 million. Aurora sold 9.2 million shares at C$3 per share, exiting its 23% stake in Alcanna. Aurora also agreed to cancel 1.75 million Alcanna warrants with exercise prices of C$15 for no consideration. The C$3 per share price represented an enterprise value of approximately C$465.6 million or 0.63 times Alcanna trailing 12 month sales.
Public vs. Private Cap Raises: Of the 5 capital raises, all were closed by public companies. So far in 2020, public companies have accounted for 81% of all capital raises, vs. 66% for the same period in 2019. In 2020, public companies have accounted for 91% of total dollars raised, vs. 68% for the same period in 2019. The dramatic recovery in cannabis stocks, both in terms of price and volume, is driving public companies to the capital markets to seek both equity and debt financings.
Public Company Listings: Of the 5 public company capital raises, all 5 are listed on Canadian exchanges (2 on the CSE and 3 on the TSX), and 4 are also U.S. exchange listed (3 on the OTC, 1 on the NYSE) and 1 is listed on the Frankfurt Stock Exchange (FSE).
Equity vs. Debt Cap Raises: Equity-based capital raises accounted for 4 of the 5 transactions and 91% of the proceeds raised. Debt financing has slowed as a percentage of total capital raised since the major MSO’s completed several large debt financings just prior to COVID-19.
Largest Debt Raise: Auxly Cannabis Group Inc. (TXSV:XLY) (OTCQX:CBWTF) completed a C$3 million, third tranche add-on to its previously announced C$25 million standby facility. The unsecured convertible debenture was issued with a 2-year maturity, 7.5% coupon and an exercise price of C$0.31 representing a 2% premium over the previous equity closing price of C$0.30. An additional 5.4 million warrants with 2-year maturity and an exercise price of C$0.37 (22% premium) were included in the transaction. Total warrant coverage was approximately 166% with an effective cost of 20.79%.
Cap Raises by Sector: The 4 of the 5 capital raises occurred in the Cultivation & Retail sector with 1 in the Investments/M&A sector.
Mergers & Acquisitions
Transactional Activity: Week 26 saw no M&A transactions, vs. 7 in the prior year period. This marks the third week in the last 5 with no M&A activity. Constrained capital availability has led several companies to cancel previously announced acquisitions and focus on cash production in their existing operations. Increased M&A activity is expected in the second half of 2020, given the large pools of capital that have been raised by cannabis SPACs.