Viridian Cannabis Deal Tracker - Week Ending March 19, 2021
Transactional Activity: There were nine more capital raises and $827.0 million higher volume this week than in the prior week. Compared to the same week last year, sixteen more transactions closed with $1,052.5 million higher volume. The average deal size was $52.1 million this week vs. $15.6 million in the same week last year. The week's dollar volume and average deal size were skewed by the blockbuster $750 million debt raised by Canopy Growth.
Cannabis stocks traded mostly sideways this week, with the price of our basket of 25 cannabis stocks down 1.8%. The market responded positively to the stimulus bill's passage and signs of a resurgent economy despite continued increases in treasury rates.
With a week still left in the quarter, total U.S. Capital raises of $2.3 billion have now surpassed the previous quarterly record of $2.2 billion set in the 4th quarter of 2018.
Two ancillary, non-plant-touching segment deals dominated this week's equity issuance: a $200 million Series C from Dutchie and a $119 million IPO from AFC Gamma Inc. The chart shows that Q1:21 is the third-largest quarter for capital raises of ancillary, non-plant-touching companies. SPAC IPOs dominated the large issuance quarters in 2019.
Largest Equity Raise: On March 16th, 2021, Dutchie (Private), a Bend, Oregon-based cannabis technology platform, raised $200 million in a Series C issue. Dutchie/s platform makes it easier for consumers to buy cannabis online while also helping retailers to simplify operations.
Tiger Global led the investor group with participation from existing investors, including Casa Verde Capital, Thrive Capital, Gron Ventures, and former Starbucks Chairman Howard Schultz. New investors include Dragoneer and DFJ Growth.
The issue is the largest equity deal we have tracked in the Software/Media sector, and it values Dutchie at $1.7 billion.
Proceeds will be used to attract new talent, expand into new markets and launch new products.
Dutchie also announced acquisitions of two Enterprise Resource Planning (ERP) and Point of Sale (POS) companies.
Second Largest Equity Raise: On March 18th, 2021, AFC Gamma, Inc (Nasdaq: AFCG), a commercial mortgage REIT, priced its IPO, raising $118.8 million by selling 6.25 million shares at $19.00 per share. The implied market cap of the company is $240 million.
AFC Gamma is a relatively new company founded in July 2020 to originate, structure, underwrite, and manage senior secured loans to participants in the legal cannabis industry.
As of February 2021, the company had outstanding loans to seven borrowers for a total principal amount of $89 million with a pipeline of loans under review of approximately $560 million.
The company believes it can earn IRRs on its loans of between 12% to 20%.
Public Company Listings: Eighteen of the 20 public companies that raised capital are listed in Canada (twelve on the CSE and six on the TSX). Eighteen of the twenty also trade on other exchanges (sixteen on the OTC and two on the Nasdaq).
Equity vs. Debt Cap Raises: Equity-based capital accounted for seventeen of this week's twenty-two capital raises but only accounted for 32.3% of the total capital raised.
Largest Debt Raise: On March 18th, Canopy Growth Corporation (TSX: WEED)(NASDAQ: CGC) announced a credit agreement with King Street Capital Management for a $750 million senior secured term loan with an ability to draw an additional $500 million under provisions of the credit agreement.
The five-year, non-amortizing facility has an interest rate of LIBOR plus 8.5% with a LIBOR floor of 1%.
Canopy's proforma cash and equivalents as of 12/31/20 would have been approximately $2.5 billion, which seems like a massive war chest until one factor in the company's cash burn runs at an annualized rate of over $400 million.
The financing is a clear signpost of what is ahead for the U.S. MSOs, many of which are far better credits than Canopy on a standalone basis. Of course, one cannot underestimate the credit support that Constellation can provide if necessary. In for a penny, in for a pound, they say.
Cap Raises by Sector: There was a highly diverse mix of sectors represented in this week's capital raises. Of the 22 companies which raised capital this week, seven came from the Cultivation & Retail sector; six came from Infused Products & Extracts; three came from both Biotech and Software; two from Hemp, and one from Real Estate.
Mergers & Acquisitions
Transactional Activity: Eleven M&A transactions were completed this week, up from one in the prior-year period. We have tracked 58 transactions in the first 11 weeks of 2021, which ranks higher than the comparable period in any year except 2019. The pace continues to accelerate.As we demonstrated in this week's Viridian Capital Chart of the Week, the activity is increasingly focused on the U.S. and ancillary segments of the industry. While we expect cultivation to rise in percentage of deals, it is quite striking that none of these weeks' eleven transactions were targeted towards the Cultivation & Retail sector.
Largest M&A Transaction: On March 18th, IM Cannabis Corp. (CSE: IMCC)(NASDAQ: IMCC), a multi-country operator in the medical cannabis sector, with operations in Israel, Germany, and Canada, announced the closing of its acquisition of Trichome Financial Corp.
Total consideration consisted of 10.1 million IMC shares, valued at approximately $81 million.
The transaction will allow IMC to enter the Canadian recreational cannabis market and leverage Trichome's indoor cultivation capacity.
Public vs. Private: Eight of this week's eleven acquisitions were made by public companies. With the recent surge in cannabis stock prices, we expect public companies to make add-on purchases of private companies using primarily stock as currency.
M&A by Sector: The most striking thing about this week's deals is that none of the targets and only one of the buyers were cultivation & retail sector companies. We don't remember a week with so many transactions with so little representation from cultivation & retail. Software companies were the buyers in three deals (2 for Dutchie), and GrowGeneration was the buyer in three transactions in the Agriculture Technology sector.