Cannabis Companies Have Raised 70% Less Money Than Last Year So Far
The Viridian Cannabis Deal Tracker is an information service that monitors capital raise and M&A activity in the legal cannabis industry. Each week the Tracker analyzes/aggregates all closed deals and allocates each transaction to one of twelve key industry sectors in which the deal occurred (from Cultivation to Brands), the region in which the deal occurred (country or U.S. state), the status of the company announcing the transaction (public vs. private) and the type of deal structure (equity vs. debt).
The Viridian Cannabis Deal Tracker provides the deal data/terms/valuations/structures and market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital and M&A strategy. Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $45 billion in aggregate value. Find it exclusively on Benzinga Cannabis every week!
INVESTMENT AND M&A ACTIVITY IN THE CANNABIS INDUSTRY
11/2/2020 – 11/6/2020
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)(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.
MERGERS & ACQUISITIONS
Capital Raises by Week
Capital Raises by Sector
MERGERS & ACQUISITIONS
M&A Activity by Week
M&A Activity by Sector
Photo by Javier Hasse.
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