Cannabis Deal Tracker - Week Ending September 4, 2020
Transactional Activity: Week 36 ended September 4, 2020, saw a 99% lower dollar volume with 4 fewer 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 2 capital raise transactions totaling $.9 million, vs 7 transactions totaling $35.5 million during the same week in 2019. The average tranche size was $0,5 million this week, vs. $5.1 million in the prior-year period.
Largest Cap Raise: On August 31, RMMI Corp, an Albertan cultivator, producer, processor, and seller of cannabis, raised US$0.58 million in a non-brokered private placement of 3.4 million common shares at a price of U.S.$0.17 per share. The use of the proceeds of the offering is to complete the build of the company’s extraction and processing facility and for general corporate purposes. RMMI closed at US$0.20 per share before the holiday weekend and that price represents a market to book ratio of .77x, which is in line with the .67x median multiple for the 38 Canadian Cultivation & Retail companies with enterprise value under $25 million that we track in the Viridian Value Tracker. The company is pre-revenue and negative EBITDA, so the most commonly used valuation metrics are not directly applicable.
Public vs. Private Cap Raises: Both of this week’s capital raises were closed by public companies. So far in 2020, public companies have accounted for 80% of all capital raises, vs. 67% for the same period in 2019. In 2020, public companies have accounted for 84% of total dollars raised, vs. 70% for the same period in 2019.
Public Company Listings: Of the 2 public company capital raises, both are listed in Canada on the CSE, and 1 also trades in the U.S on the OTCQB.
Equity vs. Debt Cap Raises: Equity-based capital raises accounted for 1 of this week’s 2 capital raises and accounted for 68% of the funds raised.
Largest Debt Raise: We tracked only 1 debt transaction in week 36. TruTrace Technologies, the developer of a fully-integrated blockchain platform for registration and tracking of intellectual property and testing data for the cannabis industry, closed a 3 year C$0.36 (US$0.27) million 8.25% Subordinated Secured Convertible Debentures deal. The issue was unusual because each $1,000 debenture converts into 20,000 shares of common stock and 20,000 warrants that have 2-year maturities. Both the original convertible debentures and the “debenture warrants” have exercise prices of C$.05, a 33% discount to the stock price on the day of issuance. The combination of this steep discount exercise price and the additional warrants make this an extremely expensive financing with an estimated effective cost of approximately 45% without even taking into account the extra warrants. We understand the credit market’s caution: TruTrace ranks #18 out of the 19 Software and Media companies we track in the Viridian Credit Tracker in overall credit quality based on its stretched liquidity, high market leverage, small size, and negative cash flow from operations in every quarter since its RTO in 2018. The company also recently announced that it will be late in filing its financial statements for the year ended April 30, 2020, so the most recently available financial data is from 1/31/2020.
Cap Raises by Sector: The 2 capital raises this week were spread across 2 different industry sectors with one in Cultivation & Retail and one in Software/Media.
Mergers & Acquisitions
Transactional Activity: Week 36 saw 5 M&A transactions, unchanged from the number in the prior-year period. Although the number of M&A transactions completed year-to-date is down 77% vs the comparable period of 2019, we continue to expect increased activity in the remainder of the year.
Largest M&A Transaction: On September 1st, Columbia Care Inc, a New York-based MSO with licenses in 18 U.S. jurisdictions, purchased The Green Solution (“TGS”), the largest vertically integrated cannabis operator in Colorado, for a total consideration of approximately US$133.5 million consisting of $110 million in stock and the remainder in a combination of secured notes and seller notes. TGS is expected to have 2020 revenues of approximately US$88.5 million and 2020 EBITDA of $18.5 million. The purchase price multiples of 1.5x revenues and 7.2x EBITDA are attractive relative to the median values of 2.7x revenues and 23.2x EBITDA for the 17 U.S. Cultivation & Retailing companies we track with enterprise values over $100 million. The transaction vaults Columbia Care into the number one position in Colorado, the 2nd largest cannabis market, and aides achievement of the company’s goal to become EBITDA positive by the third quarter of 2020.
Public vs. Private: 4 of this week’s 5 acquisitions were made by public companies. Year-to-date, 92% of M&A transactions closed in 2020 have been made by public companies (up from 71% in 2019). Public companies, particularly with the recovery in stock prices and fundraising ability, have been the dominant acquirers in the cannabis industry. Private companies remain the dominant targets for acquirers.
M&A by Sector: 3 of this week’s buyers came from the Cultivation & Retail sector, 1 from the Investment/M&A sector, and 1 from the Consumption Devices sector.