Transactional Activity: Week 24 ended June 12, 2020 was an active week in both number of transactions and aggregate dollars raised. For the first time in 2020 we saw more dollars raised and a higher average tranche size than in the same week during 2019. We recorded 7 capital raise transactions totaling $73.8 million, vs. 12 transactions totaling $71.8 million during the same week in 2019. Average tranche size was $10.5 million this week, vs. $6.0 million in the prior year period.
Largest Cap Raise: MediPharm Labs Corp. (TSX-LABS), a Canadian producer of pharmaceutical quality cannabis oil and concentrates, raised C$37.82 million in private placement of two series of unsecured convertible notes. Each note has a face value of C$20.5 million and was issued at a 7.5% discount for proceeds of approximately C$18.9 million. Both series of notes have three year maturities and are convertible into common shares at a price of C$2.28 per share. The proceeds of C$18.9 million from the second series are being held in escrow pending shareholder approval of the transaction after which the second series note will be issued. The notes have no stated coupon rate but each amortize through bi-monthly installments of approximately C$320,000 which can be paid at the company’s option in cash or stock valued at between 87% and 90% of the 5-day VWAP of the Common Shares. Warrants exercisable into 3.6 million shares with an exercise price of C$2.28 and expiry of October 9, 2023 were issued in conjunction with the two series of notes. Cash fees of 5.5% of the gross proceeds were paid to Roth Capital Partners, LLC as sole placement agent. The effective cost of the financing without fees was approximately 23.95%.
Public vs. Private Cap Raises: Of the 7 capital raises, all were closed by public companies. So far in 2020, public companies have accounted for 82% of all capital raises, vs. 66% for the same period in 2019. In 2020, public companies have accounted for 91% of total dollars raised, vs. 72% for the same period in 2019. The dramatic recovery in cannabis stocks, both in terms of price and volume, is driving public companies to the capital markets to seek both equity and debt financings.
Public Company Listings: Of the 6 public company capital raises, 5 are listed on Canadian exchanges (2 on the TSXV, 2 on the CSE and 1 on the TSX), 4 are also U.S. exchange listed (1 on NASDAQ, 3 on the OTCQX) and 1 is listed on the Frankfurt Stock Exchange..
Equity vs. Debt Cap Raises: Equity-based capital raises accounted for 4 of the 7 transactions, with a convertible debt-based financing accounting for the other 3 deals. Of the 4 equity deals, 3 had attached warrants as part of the raise. The 3 convertible debt deals had coupons ranging from 8% to 18% and terms of 2 to 3 years.
Largest Equity Raise: The largest transaction was completed by FSD Pharma Inc. (NASDAQ: HUGE) which closed an $7.48 million private placement of 1.5 million units. Each unit contained one share and one 5-year warrant to purchase shares at a exercise price of approximately $7.13. The net proceeds from the placement were expected to be used for working capital and other general corporate purposes.
Cap Raises by Sector: The Biotech/Pharma sector dominated capital raise activity in Week 24, accounting for 4 of the 7 transactions, and $50.9 million of the $73.8 million raised. This is the first time in the 5+ year history of the Viridian Cannabis Deal Tracker that this occurred. The Cultivation & Retail sector accounted for 2 capital raises, with Software/Media accounting for the other raise. As the “Capital Raises by Sector” chart below indicates, we’ve witnessed much greater diversity in sector investment this year than in 2019, indicating to us that the industry is maturing beyond state licensed operators and that investors are increasingly attracted to ancillary companies.
Mergers & Acquisitions
Transactional Activity: Week 24 was the most active week for M&A transactions so far in 2020. We recorded 3 M&A transactions, vs. 9 in the prior year period.
Largest M&A Transaction: Charlotte’s Web Holdings (TSX: CWEB) closed the acquisition of all the issued and outstanding subordinate voting shares of Abacus Health Products Inc. for a total consideration of approximately $76.7 million worth of Charlotte’s Web common shares. The transaction will expand the Charlotte’s Web portfolio in the Topical Products category which is forecasted to become the largest CBD segment by 2021 according to the Brightfield Group.
Public vs. Private: All 3 acquisitions were made by public companies as has been the case in 90% of M&A transactions announced in 2020. Public companies, particularly with the recovery in stock prices and fund raising ability, have been the dominant acquirers in the cannabis industry. Of the acquired companies, 2 were private and 1 was public. Private companies remain the dominant targets for acquirers.
M&A by Sector: Buyers came from 3 different sectors, 1 each in Cultivation & Retail, Hemp and Investments/M&A.