Special Purpose Acquisition Companies (SPACS) have had increased activity in the cannabis and hemp/CBD industries over the past year. Presently, these “blank check companies” have raised more than $3 billion. Investors and operators interested in partaking in these vehicles and participating in the public market should be aware of which SPACs will be looking to acquire participants in the cannabis and hemp/CBD industries and the tools they will need to navigate these somewhat rocky waters.
Understanding SPACs and the Cannabis Industry
While SPACs are not new to the public market, they have recently taken on some novelty by targeting businesses in the cannabis and hemp/CBD industries, and ancillary businesses to those industries.
Given the nature of these corporate vehicles, there is often limited information on the SPACs’ targeting businesses, as by design these types of companies do not have a firm business purpose.
SPACs typically have 18-to-24 months to purchase private companies or return money back to their investors. To the extent a hemp/CBD- specific SPAC or a SPAC that has expressed intentions of acquiring a cannabis operator, but has not yet combined with one, the SPAC may register on a U.S. exchange – and many of them have or have indicated expectations to. Also, many U.S. stock exchanges have demonstrated signs of being more accepting of businesses that are not plant-touching, but instead ancillary to the cannabis and/or hemp/CBD industries (ie., production and retail of cannabis packaging).
However, once a SPAC purchases a plant-touching company (such as a marijuana cultivator, processor, or dispensary), the SPAC will likely delist on the U.S. exchange, due to the federal illegality of marijuana in the U.S., and then relist on a Canadian exchange.
Major Players to Watch
In July 2020, Forbes has listed several top cannabis SPACs, with information on their fund size, listed exchange, and formation date (which will trigger their deadline to enter into a business combination or be forced to liquidate). Some of these SPACs include warrant-based SPACs.
A few of the major players that have expressed specific targets of cannabis businesses (likely plant-touching) include:
- Greenrose Acquisition
- Has raised $150M at the beginning of 2020.
- It plans to list on the Nasdaq under the symbol GRACU.
- Ceres Acquisition Corp.
- Has raised $130M in March 2020 and has expressed intentions in pursuing $300M in cannabis M&A targets.
- Ceres is expected to target consumer-facing cannabis companies involved in “retail, brand building, or consumer packaged goods” and has recognized the possibility of acquiring an operator that is vertically integrated with retail, cultivation, and production as well.
- It has indicated that it will target as few companies and assets as possible to keep the transaction simple
- Akerna Corp. (KERN) developed in June 2019 and became the first SPAC that was cannabis-focused
- Acquired MJ Freeway, a Denver cannabis tech company
- Toward the end of 2019, Akerna announced an acquisition and purchase of Ample Organics, which is a top seed-to-sale Canadian business
- Within the last year, Akerna has expressed focus on forming strategic relationships with leading operators and brands
- Mercer Park Brand Acquisition Corp is a sponsor of another SPAC, Ayer Strategies Inc. (CSE: AYR.A, OTCQX: AYRSF)
- Ayr is the leading cultivator, manufacturer, and retails of cannabis products and branded cannabis packaged goods. It’s a vertically integrated multi-state operator in the U.S. with a portfolio of assets initially based on MA and NV.
- Last year Ayr reported its acquisition of 5 operators: Washoe Wellness, The Canopy NV, Sira Naturals, LivFree Wellness, and CannaPunch of Nevada
- Ayr has announced expectations to create “regional clusters in core geographics for future expansions” while maintaining strong organic growth in its existing portfolio.
- Schultze Special Purpose Acquisition Corp.
- Announced in June 2020 that it has entered into a non-binding LOI with Clever Leaves, a multi-national cannabis operator.
- Clever Leaves is vertically integrated with operations and facilities internationally, in Colombia, Portugal, the United States, Canada, and Germany.
- Schultze was formed for the purpose of entering into a merger, stock exchange, asset acquisition, stock purchase, recapitalization, reorganization, or other similar business combination with one or more businesses or entities.
How to Find a SPAC If You’re a Cannabis Operator
Surveys suggest the following top 5 things you will need to help find a SPAC if you’re a cannabis operator:
- A good financial adviser or investment banker to assist you in obtaining the proper valuation for your company and support you in “shopping” the deal
- The right deal lawyer to assist you in navigating the market and legal complexities to arrive at the right deal for you
- 2 to 3 years of audit history
- Proper finance and accounting systems should be in place in preparation for going public
- “Capable management” that is interested in becoming a part of a larger organization backed by a strong business that can yield the load of a combined company