Cannabis Deal Tracker - Week Ending September 11, 2020
Transactional Activity: Week 37 ended September 11, 2020, saw a $20.2 million higher dollar volume with 3 more transactions vs. the prior week of this year and a sharply lower dollar volume and number of transactions vs the prior-year period. We tracked 5 capital raise transactions totaling $21.1 million, vs 16 transactions totaling $256.9 million during the same week in 2019. The average tranche size was $4.2 million this week, vs. $16.1 million in the prior-year period. Approximately one half of last year's total was accounted for by the $121.5 Aurora drawdown of its credit facility.
Largest Cap Raise: On September 10, Planet 13, an integrated Nevada cannabis company, raised US $17.5 million in a bought deal public offering of 6.2 million units at C$3.70 per unit (US$2.81 per unit). Each unit consisted of one share of common stock and ½ of one common share purchase warrant with an exercise price of C$5.00 and maturity of 24 months. We value the warrant portion of the unit at approximately C$0.13 using Black Scholes and a 30% volatility, giving a net share price of C$3.57 (US$2.71). The shares actually closed at C$4.13 on the transaction date, a 15.6% premium to this value. Planet 13’s enterprise value is approximately 4.4 times consensus 2021 revenue estimates and 15.95 times consensus 2021 EBITDA, estimates, significant premiums to the median multiples of 1.9 times 2021 revenues and 8.5 times 2021 EBITDA for the group of 14 analyst-covered, U.S. Cultivation and Retail companies in the Viridian Value Tracker with enterprise values over $100 million. We certainly understand the company’s decision to issue equity at this price, which is up over 60% from the beginning of 2020, but we also believe the company is in a good position to raise debt. We rank it as #4 of the 17 US Cultivation and Retail sector competitors in our Viridian Credit Tracker, behind only Green Thumb, Curaleaf, and Truilieve, due to its strong profitability, excellent liquidity, and low leverage. The primary use of the proceeds of the offering (retail expansion outside of Nevada) addresses the one knock on the company we perceive.
Public vs. Private Cap Raises: All 5 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 5 public company capital raises, all are listed in Canada on (3 on the CSE and 2 on the TSX), and 4 also trade on other markets (4 on the OTC the U.S on the OTC and 1 on the FSE).
Equity vs. Debt Cap Raises: Equity-based capital raises accounted for 4 of this week’s 5 capital raises and accounted for 93% of the funds raised.
Largest Debt Raise: We tracked only 1 closed debt transaction in week 37. Auxly Cannabis Group, an international cannabis company that provides cannabis products to the medical, wellness, and adult-use markets, closed a two year C$2.0 million (US$1.52 million) 7.5% Unsecured Convertible Debenture tranche under its C$25 million standby facility with an institutional investor. The debentures have a conversion price of C$0.18 per share, which is a 9% premium to the C$0.165 closing price on the transaction date. The tranche also included 6.1 million two-year warrants with exercise prices of C$.216, a 31% premium, and a coverage of 66%. The effective cost of the issue was 17.29% using Black Scholes and 30% volatility to value the embedded options. This is Auxly’s 4th issuance under the standby facility and its effective costs have been trending downward from 22.5% on May 21, to 19.0% on June 26 to 17.3% currently. Auxly ranks #25 out of the 58 Canadian Cultivation and Retail sector companies on the Viridian Credit Tracker with enterprise values under US$100 million. Its relatively strong liquidity and larger than median size for the group are offset by its high market leverage and below-median profitability.
Cap Raises by Sector: The 5 capital raises this week were spread across 2 different industry sectors with four in Cultivation & Retail and one in Infused Products & Extracts.
Mergers & Acquisitions
Transactional Activity: Week 37 saw 1 M&A transaction, down from 7 in the prior-year period. Although the number of M&A transactions completed year-to-date is down 78% vs the comparable period of 2019, we continue to expect increased activity in the remainder of the year.
Largest M&A Transaction: On September 8th, BevCanna Enterprises Inc. (CSE: BEV,) (OTCQ: BVNNF), a manufacturer of cannabinoid-infused beverages and consumer products for in–house brands and white label clients, completed its acquisition of Naturally Pure Therapy Products Corp. (“Pure Therapy”). Consideration consisted of 30 million shares of BevCanna with a deemed price of C$0.20 per share for a total of C$6.0 million (US$4.5 million). “The Acquisition will provide BevCanna a proven e-commerce brand and platform to further expand and launch its own propriety products directly into the global health and wellness market, including the burgeoning US CBD market.” Pure Therapy had unaudited 2019 calendar year revenue of C$4.9 million producing a purchase price multiple of 1.22 based on last year's sales. This is quite low relative to the 8.8 median EV/ LTM revenue multiple of the 12 Canadian Infused Products and Extracts companies in the Viridian Value Tracker with enterprise values below US$25 million, particularly given that Pure Therapy was profitable for 2019. The acquisition is clearly accretive given BevCanna’s pre-revenue status as of June 2020.
Public vs. Private: This week’s only acquisition was made by a public company. Year-to-date, 92% of M&A transactions closed in 2020 have been made by public companies (up from 70% 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: Both the buyer and seller of this week’s deal came from the Infused Products & Extracts sector.