On February 11, Greenrose Acquisition Corp. (NASDAQ: GNRSU) priced a $150 million initial public offering, becoming the latest in a series of cannabis-focused “blank check” companies to go public. Based in Woodbury, New York, Greenrose sold 15 million units priced at $10 each. Imperial Capital LLC and I-Bankers Securities Inc. underwrote the offering.
Blank check, or special purpose acquisition corporations (SPACs), are publicly traded companies that raise money from investors to acquire an existing company, generally one that is privately held. The money is held in a trust until a merger or acquisition is identified. Because investors don’t know upfront just where their money will be used, SPACs are often referred to as blank checks.
SPACs offer privately held companies an alternative to the traditional IPO through a merger or other business combination, thus saving them from having to go through the paperwork-intensive and lengthy process. If the SPAC fails to complete a merger or acquisition within the required time frame, all of the public shares are redeemed for a pro rata portion of the cash held in the trust account.
Last year, 59 blank check companies went public, raising $13.6 billion, according to SPAC Research. So far this year, eight SPACs have gone public raising $2.5 billion.
Despite some not so positive returns for several publicly traded companies, the nascent cannabis industry has been ripe for SPACs as investor excitement continues to grow. In this review, we take a look those cannabis-focused SPACs that have popped up in recent years, how much they have raised and who is behind them.
Greenrose Acquisition Corp.
Greenrose Acquisition Corp. noted in its filing with the Securities and Exchange Commission that the cannabis market is “growing, but highly fragmented and undercapitalized” and companies operating across multiple verticals “consistently have trouble accessing capital from traditional sources.”
The company’s management team consists of “experienced deal makers, operators, and investors who have worked in the agricultural and investment services industries,” according to the SEC Filing.
They are CEO and Director William F. Harley III, who has more than 30 years of experience in the agriculture, real estate and finance industries, and Brendan Sheehan, executive vice president, corporate strategy and investor relations and director. He has more than 25 years of experience in business development, sales and operations in the finance, technology and healthcare industries.
Stable Road Acquisition Corp.
On November 13, 2019, Stable Road Acquisition Corp. (NASDAQ: SRAC) announced it closed on an IPO of $172.5 million. The New York-based company sold 17,250,000 units, including 2,250,000 units issued pursuant to the exercise by the underwriter of its over-allotment option priced at $10 per unit. Cantor Fitzgerald & Co. acted as the sole book running manager for the offering.
The company noted that its strategy is to pursue “one or more business combinations with companies servicing and operating adjacent or ancillary to, the cannabis sector, but which are not directly involved in the production, distribution and sale of cannabis (i.e. businesses that “touch the plant”), according to its SEC filing. They include vaporization products and cannabis accessories; software, such as seed-to-sale tracking; labs; distribution; real estate; brands; and packaging.
The company’s management team includes Brian Kabot, chief investment officer of Stable Road Capital, LLC, James Norris, CFO of Stable Road Capital and Juan Manuel Quiroga, chief investment officer of NALA Investments, LLC. Combined, they have more than 60 years of investment management experience. Stable Road Capital is known for being an investor in the real estate of MedMen (CSE: MMEN) (OTC: MMNFF) through its Treehouse collaboration and has made investments in the sector in companies that include Grenco Science and Plus Products (CSE: PLUS) (OTC: PLPRF).
Merida Merger Corp. I
On November 7, 2019, New York-based Merida Merger Corp. I (NASDAQ: MCMJ) (NEO: MMK) announced it had raised $120 million via a dual listing on the Nasdaq and Canada’s NEO Exchange. It was the first SPAC to be backed by a dedicated private equity firm (Merida Capital Partners III LP) focused on investing in the cannabis industry.
Merida Capital Partners’ management team has worked with legal cannabis companies since 2009 and has been investing in cannabis-related companies since 2013, according to the SEC filing. Unlike some of the other cannabis SPAC leadership that have popped up in recent years, Merida’s principals “have helped to build and operate sophisticated cannabis cultivation facilities and have directed significant investments into a broad spectrum of cannabis-related companies ranging from data analytics companies to hydroponic suppliers.”
The company is led by Peter Lee, president, CFO and director and Richard Sellers, executive vice president of mergers and acquisitions. Mitchell Baruchowitz, who is the managing member of Merida Capital Partners, is the non-executive chairman of the board of this SPAC.
Silver Spike Acquisition Corp.
Last August, New York-based Silver Spike Acquisition Corp. (NASDAQ: SSPK), announced it priced a $250 million cannabis-focused SPAC. It was incorporated as a Cayman Islands exempted company and is backed by Silver Spike Capital, an asset management fund formed in 2019 and focused on the cannabis industry.
The company’s founder, Scott Gordon, also is the founder and CEO of Silver Spike Capital, which began investing in the cannabis industry in 2014. In 2016, Gordon co-founded and became chairman of Egg Rock Holdings, a holding company that invests in and operates companies in the cannabis market and is the parent company of the Papa & Barkley family of cannabis products. Other members of the team include President William Healy, CFO Gregory M. Gentile, and COO Mohammed Grimeh.
“As the industry continues to transition to a new legislative and regulatory framework, we believe that many companies will need a partner that can assist in providing a level of operational and financial expertise to support their growth. Our team includes a variety of investment, operational and healthcare professionals who will provide operating, technical, regulatory and legal expertise to assist a target business access the public markets,” the company stated in its SEC filing.
Ceres Acquisition Corp.
On February 5, Los Angeles, Calif.-based Ceres Acquisition Corp. filed a preliminary prospectus with Canadian regulatory authorities for a proposed public offering to raise $120 million. The company plans to trade on the NEO Exchange.
The management team includes CEO Joe Crouthers, who started a cannabis distribution and transportation company brokering sales of input materials to cannabis product manufacturers; President, CFO and Corporate Secretary Jordan Cohen, who has experience in the technology and wellness industries; and, COO Michael Vukmanovich, who got his start in the legal cannabis industry investing, advising and networking with some of the industry’s top founders, according to the prospectus.
The sponsor, Ceres Group Holdings, has been investing in the industry since 2016, with stakes in Fotmer Life Sciences, a licensed cultivation company in Uruguay, vaporizer manufacturer Pax, Palms, a multi-state pre-roll brand, and Silverpeak, a Colorado operator.
“We believe that our understanding of the dynamics, competitors, trends, risks, unique nature, and opportunities of the cannabis segment will enable us to efficiently pursue the industry’s best opportunities and potential transactions,” the company stated. It is targeting investments in the US$200-600 million range.
There are numerous other SPACs who entered the market earlier on. They include:
- Ayr Strategies Inc. (CSE: AYR, OTC: AYRSF), formerly Cannabis Acquisition Strategies Corp., which raised C$125 million and then closed a merger with five cannabis companies across the nation.
- Akerna Corp. (NASDAQ: KERN) , formerly MTech Acquisition Corp, which completed a merger with cannabis software maker MJ Freeway last June, initially raised US$50 million. MTech was the first US-listed SPAC focused on acquiring a business ancillary to the cannabis industry.
- Canaccord Genuity Growth Corp. (NEO: CGGC.UN) now Columbia Care Inc., (NEO: CCHW) (OTC: CCHWF) raised C$46 million. Canaccord Genuity Growth II Corp. (NEO: CGGZ) raised C$100 million.
- In March 2019, New York-based Tuscan Holdings (NASDAQ: THCB) raised US$240 million. Then in June of the same year, it filed for another SPAC, Tuscan Holdings II (NASDAQ: THCA), raising $172 million.
- In May 2019, Mercer Park Brand Acquisition (NEO: BRND) announced the closing of its $402.5 million public offering. The company said it will focus on acquiring one or more cannabis companies with an estimated aggregate enterprise value of $300 million to $800 million. The sponsor, Mercer Park, had previously sponsored the SPAC that became AYR Strategies.
- Subversive Capital (NEO: SVC) closed on a US$575 million IPO in July 2019. The following month, Bespoke Capital Acquisition Corp. (TSX: BC) closed on a US$350 million IPO.
Because so many cannabis companies are privately held, going public via a SPAC is one way to inject lots of capital into a proven company without having to start from the ground up. With these SPACs having been successfully completed, the question now becomes what will they purchase and will they be able to do it within the required deadlines.