Cannabis Deal Tracker - Week Ending November 6, 2020
Transactional Activity: Week 45 ended November 6, 2020, saw a $28.2 million lower dollar volume and 2 fewer transactions vs. the prior week of this year and a 90.5% lower dollar volume with the same number of transactions vs the prior-year period. We tracked 3 capital raise transactions totaling $28.0 million, vs 3 transactions totaling $295.6 million during the same week in 2019. The average tranche size was $7.3 million this week, vs. $98.5 million in the prior-year period. Last year’s totals were heavily influenced by two SPAC IPOs: Stable Road ($150M) and Merida Merger I ($120M).
Largest Cap Raise: On November 5, 2020, Planet 13 Holdings (CSE: PLTH) (OTCQB: PLNHF), a company primarily known for its Las Vegas superstore which is believed to be the largest cannabis dispensary in the world, completed its previously announced C$28.8 million (US22.02M), bought-deal public offering of 6.7 million units at C$4.30 (US$3.29) per unit. Each unit consisted of one common share and one half of a subordinated share purchase warrant with a term of 24 months and an exercise price of C$5.80 (US$4.43) per share ( a premium of approximately 35%). We value this warrant at approximately C$.53 (C$.265 per unit) giving a net stock price of C$4.04. The stock closed at C$4.89 per share on the transaction date. Planet 13 was hit hard by the COVID 19 forced closure of its Las Vegas superstore in mid-March but has rebounded strongly since the store reopened in June. On November 9, the company announced that October had been its third consecutive month with revenues above $7.5 million, putting it on track for a strong close to the year. The stock has reacted accordingly, rising 88% YTD. Planet 13 now trades at approximately 4.27 times consensus 2021 revenue estimates, a premium to the 2.55 x we observe for the 14 U.S. Cultivation & Retail sector companies in the Viridian Value Tracker with market caps over US$100 million. We believe the company would find a strong reception in the debt markets as well. The Viridian Credit Tracker ranks PLTH as the 4th strongest credit of the 35 US Cultivation & Retail companies we track, with exceptional liquidity and the lowest market leverage. COVID-19 revealed the company’s chief weakness - its reliance on the Las Vegas market, and the company is working to remedy this issue by expanding into California with the June acquisition of Newtonian Principals, a dispensary in Santa Ana, California.
Public vs. Private Cap Raises: All 3 of this week’s capital raises were closed by public companies. So far in 2020, public companies have accounted for 81% of all capital raises, vs. 65% for the same period in 2019. In 2020, public companies have accounted for 85% of total dollars raised, vs. 69% for the same period in 2019.
Public Company Listings: Of the 3 public company capital raises, all are listed in Canada on (2 on the CSE and 1 on the TSX), and all 3 also trade on secondary exchanges (the OTC).
Equity vs. Debt Cap Raises: Equity-based capital raises accounted for 2 of this week’s 3 capital raises and 97% of the total dollars raised.
Largest Debt Capital Raise: On November 2, Avicanna Inc. (TSX: AVCN (OTCQX: AVCNF), a biopharmaceutical company which focuses on the research, development, cultivation, manufacture, and commercialization of plant-derived cannabinoid-based products and extracts for the use in medical, consumer health, and pharmaceutical industries internationally, closed an 8%, one-year, C$1.1 million (US$.83M) non-brokered convertible debenture financing that is convertible at $1.00 per share (a 10% premium). Investors also received 1 warrant for every $2 of the principal amount. The warrants have a 2-year maturity and a $1.50 exercise price (a 65% premium). Despite the 75% warrant coverage, the high premium reduces the value of the warrants to approximately 1.5% of the principal. The conversion option, however, given its low premium, is quite valuable raising the total effective cost of the offering to 17.96%. The Viridian Credit Tracker ranks Avicanna as the 8th strongest credit of the 17 Canadian Biotech companies we track with market caps under US$100 million. Low balance sheet liquidity and negative cash flow from operations combined to create an $8 million financing need in the LTM period and ongoing financings will continue to be required.
Cap Raises by Sector: The 3 capital raises this week were spread across 3 different industry sectors with one each in Cultivation & Retail, Infused Products and Extracts, and Biotech/Pharma.
Mergers & Acquisitions
Transactional Activity: We tracked no closed M&A transactions in week 45 but did note two significant announced transactions: TerrAscend (CSE: TER)(OTC: TRSSF) agreed to acquire 100% of the equity of HMS, a Maryland cultivator and processor of medical cannabis from Curaleaf for a total consideration of $27.5 million, and Ayr Strategies (CSE: AYR-A)(OTC: AYRSF) announced it is buying a vertically integrated operation in Arizona, including cultivation and processing facilities and three licensed dispensaries in a deal valued at $81 million. We continue to believe that a combination of new state legalizations, favorable stock market conditions, and SPAC activity will lead to increases in M&A activity in the remainder of 2020 and into 2021.