Viridian Cannabis Deal Tracker - Week Ending May 21st, 2021
Transactional Activity: There was one more capital raise but a $164.8 million lower volume this week than in the prior week. Compared to the same week last year, seven more transactions closed with a $78.1 million higher volume. The average deal size was $9.4 million this week vs. $4.8 million in the same week last year.
The price of our basket of 25 cannabis stocks was up 1.0% this week.
Total capital raised YTD in 2021 is approximately $450M lower than the same period in 2019, primarily because of lower debt issuance.
Largest Equity Raise: On May 20th, 2021, Stability Cannabis (Private), a leading cannabis cultivator in Oklahoma, closed a $44 million Series A funding round
Proceeds will be used for general corporate purposes and to fund a pending acquisition in Missouri.
The acquisition, pending regulatory approval, will be the first move for the company outside of Oklahoma.
2nd Largest Equity Raise On May 17th, MedMen Enterprises Inc. (CSE: MMEN)(OTCQX: MMNFF) announced that it had closed a sale of US$10 million of units at US$0.32 per unit. Each unit consists of one Class B subordinated voting share and one warrant exercisable at US$0.352 for three years. The deal itself is unremarkable, but we are surprised that MedMen can access the equity market at all!
The company continues to bleed cash: Cash flow from operations for the quarter ended 3/31/21 was about negative $14 million, down from negative $10 million in the previous quarter.
Liquidity remains weak: As of March 31st, MedMen had negative working capital of $168 million.
Leverage is extraordinarily high: Total debt to market cap is over 2.7x, a level we associate with deep distress/insolvency.
On May 11th, the company entered into its 5th modification of its Senior Secured Commercial Loan Agreement with Hankey Capital and got a new waiver from Gotham Greene.
MedMen ranks as the worst credit out of the 20 U.S. cultivation & retail companies with a market cap of over $100 million on the Viridian Credit Tracker ranking system.
So what's the good news?
MedMen has managed to keep itself alive by selling ancillary (and some not so ancillary) assets. The company has also done a commendable job of reducing total SG&A expenses.
The company was able to cancel 97 million in-the-money options owned by Gotham Greene because it has had two consecutive quarters of "Retail Adjusted EBITDA." We tend to be skeptical of "adjusted EBITDA" in the first place. Still, MedMen's measure allowed it to earn a positive adjusted EBITDA of $7.4M by eliminating negative cultivation and wholesale gross margins of $4.2M and corporate SG&A of $16.4M. It would be nice if it were that easy!
The best news for MedMen is that it enjoys a captive audience of debtholders who can't afford to pull the plug. Gotham Greene is doing whatever it can to maintain optionality. It holds secured debt in case it is forced to push the button but hopes that legalization will allow it to unload MedMen on somebody else, perhaps a wayward Canadian L.P.
And in typical 2021 fashion, the bet seems to be working. The chart below shows that since the Georgia Senate flip, MedMen stock has significantly outperformed our basket of 25 cannabis stocks. Are we wrong to view this as an out-of-the-money call option on legalization?
Public Company Listings: All four public companies that raised capital this week are listed in Canada (two on CSE and two on TSX). In addition, three trade on OTC and one trades on the AQSE.
Equity vs. Debt Cap Raises: Equity-based capital accounted for nine of this week's ten capital raises nearly all of the funds raised.
Largest Debt Raise: Cannabis companies completed only one debt deal this week, a US$0.42 million private convertible note for AgriCann, a spin-off from the Valens Company.
5% coupon, maturing in 12 months.
A conversion price of US$0.21.
Cap Raises by Sector: The ten companies which raised capital this week came from the following sectors:
Cultivation & Retail: 3
Infused Products & Extracts: 2
Biotech & Pharma: 1
Miscellaneous Ancillary: 1
Mergers & Acquisitions
Transactional Activity: Five M&A transactions were completed this week, compared to zero in the prior-year period. We have tracked 128 transactions YTD in 2021, compared to 30 in the same period last year. Public companies were the buyers in 83% of 2021 deals YTD compared to 90% in 2020. The number of deals with U.S. targets continues to run at record levels, and more international transactions are beginning to reemerge.
Largest M&A Transaction: On May 17th, Sugarmade (OTC: SGMD), a product and branding company, announced the closing of its acquisition of Lemon Glow Company
The purchase price was approximately $23.3 million, consisting of $18.6 million in stock and $4.7 million in cash.
The acquisition includes 640 acres of property, 32 of which are designated for outdoor cannabis cultivation. The annual capacity of the property is estimated to be approximately 4000 pounds.
Public vs. Private: Four of this week's five acquisitions were made by public companies.
M&A by Sector: The buyers in this week's deals were all from different sectors: Agriculture Technology, Cultivation & Retail, Hemp, Investments/M&A, and Real Estate.