Viridian Cannabis Deal Tracker - Week Ending April 23, 2021
Transactional Activity: There was one less capital raise and $4.7 lower volume this week than in the prior week. Compared to the same week last year, ten fewer transactions closed with a $94.0 million lower volume. The average deal size was $6.0 million this week vs. $8.0 million in the same week last year.
Issuance remained low this week, with only $41.9 million of total capital raised. Nonetheless, 2021 maintains its lead for the most capital raised for the first 16 weeks in cannabis history.
The price of our basket of 25 cannabis stocks was up 1.0% this week, the first up week since mid-March.
Largest Equity Raise: On April 23rd, 2021, Stem Holdings, Inc. (CSE: STEM)(OTCQX: STMH), a vertically integrated cannabis company, with cultivation, processing, extraction, retail, and distribution operations, with owned facilities in Nevada, Oklahoma, and Oregon, closed an $8.26 million marketed public offering.
18.74 million units at US$.44 per unit.
Each unit consists of one share and one 2-year warrant with a US$.55 exercise price (25% premium).
Stem sold shares at an 18.4% discount to pre-announcement levels.
The sale imputes a market cap of $91 million. EV/ consensus 2021 revenues was 1.48x, a modest discount to the 1.86 median we calculate for the ten analyst rated US Cultivation & Retail sector companies we track with market caps under $500 million.
We rank Stem as the 6th strongest credit out of the 23 US Cultivation & Retail companies we rank in the Viridian Credit Tracker. The company scores well in leverage (#7/23) and Profitability (#5/23), but its overall rating is adversely by constrained liquidity despite the positive impacts of this issue. The company's high credit ranking implies that it could refinance its current maturities with debt capital if desired.
2nd Largest Equity Raise: On April 19th, Cannabis financing company Bespoke Financial (Private) announced that it closed an $8 million Series A financing round. Bespoke is a direct lender providing short-term loans to cannabis companies. Bespoke has deployed $120 million in volume across 2000 license holders and has experienced no defaults to date.
Bespoke has raised $28 million to date, including this round.
Snoop Dogg's Casa Verde Capital and Sweat Equity Ventures (backed by LinkedIn founder Reid Hoffman) were lead investors accompanied by Ceres Group, Greenhouse Capital, and DoubLine Capital.
Bespoke was Sweat Equity's first cannabis investment.
Bespoke intends to use the proceeds to launch new financing structures.
Public Company Listings: All four of the public companies that raised capital this week are listed in Canada (two on the CSE and two on the TSX). Three of the four also trade on the OTC.
Equity vs. Debt Cap Raises: Equity-based capital accounted for all four of this week's six capital raises and accounted for 51.7% of the capital raised.
Largest Debt Raise: On April 20th, CannTrust Holdings announced that it had secured a DIP loan for up to US$18.2 million from Cortland Credit Lending Corporation, subject to approval by the Ontario Superior Court presiding over the company's CCAA proceedings (Canadian Bankruptcy). The financing will fund working capital needs during the CCAA proceedings and upon satisfaction of certain conditions after the company's exit from CCAA. The exact terms of the borrowing base calculation were redacted.
The loan has a maturity of 12 months and can be extended for an additional 12 months with both parties' consent.
The interest rate was redacted from the filed term sheet.
The loan is secured on a super-priority basis by substantially all assets of the company except for $50M deposited to a separate account to fund the settlement and implementation of the CCAA plan, and $2.5M deposited to a separate account to settle trade creditors and employment claims.
Cap Raises by Sector: Of the seven companies which raised capital this week, three came from the Cultivation & Retail sector; two came from Biotech/Pharma; and one each came from Software/Media, Biotech/Pharma, and Investment / M&A.
Mergers & Acquisitions
Transactional Activity: Seven M&A transactions were completed this week, compared to none in the prior-year period. We have tracked 92 transactions YTD in 2021, compared to 25 in the same period last year. Public companies were the buyers in 82% of 2021 deals YTD compared to 88% in 2020.
Largest M&A Transaction: On April 22nd, 2021, GABY (CSE: GABY)(OTCQB: GABY, a California based cannabis consumer product company, announced it had closed its previously announced merger with Miramar Profession Services which operates the Mankind Dispensary, one of the oldest licensed dispensaries in California.
Consideration of $36.5 million was paid through the issuance of 157.9 million GABY shares valued at approximately US$6.0 million, US$5.0 million in cash, and a US$25.5 note.
The total consideration represents 1.22x Mankind's 2020 revenues of US$29.8 million and 6.9x Mankind's 2020 EBITDA of US$5.3.
The transaction adds retail to GABY's existing manufacturing and distribution capabilities and is cash flow accretive.
Most interesting M&A Transaction: On April 23rd, 2021, InterCure Ltd (TASE: INCR), Israel's leading cannabis company, completed an acquisition of Subversive Acquisition LP, a SPAC, in an unusual deal.
Unlike most SPAC acquisitions, in this deal, the SPAC is being acquired
Unlike most de-SPACing transactions, the counterparty to the SPAC was already a public company.
Our analysis of the transaction is the following:
InterCure essentially completed a financing transaction disguised as an acquisition. They issued shares and warrants worth $211.75 million, but they got a shell company that had $193 million of cash in return. So they paid $18.75 million for an immediate listing to the TSX with a future uplisting to NASDAQ. Considering the amount of discount that might have been required to push that size of financing into the market, it doesn't sound like a bad deal.
Former Subversive shareholders will end up owning about 43.5% on InterCure, and InterCure will have $193 million of cash to continue its rapid growth. Cannabis financing at its most creative!
Public vs. Private: Six of this week's seven acquisitions were made by public companies.
M&A by Sector: Two of this week's buyers came from the Infused Products & Extracts sector; two came from Real Estate; two came from Investment / M&A, and one came from Cultivation & Retail.