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SPAC’s Are Becoming A Vehicle Of Choice For Cannabis Firms To Access The Public Markets

Jun 4, 2020 • 7:45 AM EDT
6 MIN READ  •  By Michael Berger
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During the last year, the term SPAC became more common in the cannabis industry and is an area that our readers should familiarize themselves with. SPAC stands for a special purpose acquisition company (SPAC), which serves as a vehicle to raise capital through an initial public offering (IPO) so as to acquire an existing company.

Although SPACs have been around for decades, they have recently become popular and this is a trend that we are highly focused on. Many of the SPACs that are focused on the cannabis industry are trading on a big board exchange like the Nasdaq.

Last year was a pivotal year for SPACs as they raised a record amount of capital and attracted investors and funds that are considered to be smart money. Going forward, we expect to see additional SPACs hit the market and have highlighted some of the cannabis companies that fall under this classification. 

Schultze Special Purpose Acquisition Commences Trading

 Earlier this month, Schultze Special Purpose Acquisition Corp. (NASDAQ: SAMA) joined the list of cannabis SPACs that are trading on the Nasdaq and is an opportunity that captured our attention. With more than $130 million of cash on the balance sheet, SAMA is well positioned to capitalize on the cannabis industry and plans to use the funds for near-term operating expenses, capital expenditures, working capital, and potential M&A opportunities.

Concurrent with the public listing, the SPAC reported to have entered into a non-binding letter of intent (LOI) with Clever Leaves International to enter into a business combination. Under the terms of the LOI, the companies plan to enter into a definitive agreement that will result in Clever Leaves owning a majority of the equity in the combined public company.

Clever Leaves is a vertically integrated cannabis operator that has operations and facilities in Colombia, Portugal, the United States, Canada and Germany. The company has successfully developed a low-cost, pharmaceutical-grade cannabis cultivation and extraction platform, operating under Colombian Good Manufacturing Practices (GMP) and we find this to be of significance.

Clever Leaves is highly focused on execution and is working to be granted a European Union Good Manufacturing Practice (EU GMP) certification for cannabis extracts subject to successful completion of the certification process. Currently, the company cultivates on more than 1.9 million square feet of greenhouses, making it one of the largest cannabis cultivation and extraction companies in the world.

One of the reasons we are excited about Clever Leaves is related to the global distribution platform that it has in place. The platform includes whole or partial ownership of two medical cannabis distribution companies in Germany as well as a branded nutraceutical producer and distributor in the US. The company’s investments are expected to be a major growth driver in rapidly expanding cannabis markets within Europe, Australia, the Middle East, and South America.

Another reason we are excited about Clever Leaves is due to the relationship that it has with Canopy Growth’s (WEED.TO) (CGC). The company recently secured a regional supply agreement with Canopy LATAM Corporation which better positions the business as a leading cannabis supplier in Latin America.

SAMA is a blank check company that 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. We are favorable on the LOI with Clever Leaves and will monitor how the story continues to evolve.

Akerna: A Cannabis SPAC that Continues to Execute

Last year, Akerna Corp. (KERN) became the first cannabis-focused SPAC following its acquisition of MJ Freeway and is an opportunity that we are closely following. The offering raised more than $50 million and we are favorable on how the business has evolved since then.

In late 2019, Akerna announced a transformational acquisition and purchased Ample Organics, the leading seed-to-sale company in Canada. Ample Organics works with pretty much all of the largest producers in the cannabis sector and offers a platform that is second to none in Canada. We believe that the combined company has substantial growth prospects and expect the management team to find substantial synergies between the businesses.

During the last year, Akerna has been highly focused on forming strategic relationships with leading operators and brands. We believe that the management team has done a great job at executing on this strategy and are especially excited about the relationship that it has with Pax Labs. The companies will work to help deliver supply chain analytics that prioritize transparency and customer safety. We find this focus to be significant and this is an opportunity that we will continue to be watching.

Going forward, we expect Akerna to report impressive growth and for the acquisition of Ample Organics to play an important role. Earlier this year, we met with Akerna CEO Jessica Billingsley and continue to be impressed with how she has been able to create value for the business.

Merida Merger: One of the First Cannabis SPACs

 In late 2019, Merida Merger Corp. I (Nasdaq: MCMJ) commenced trading on the Nasdaq and is an opportunity that we have been following. The company is led by a management team that has a proven track record of success in the cannabis industry and we are favorable on this aspect of the story.

In 2009, Merida Capital Partners’ management team started to work with legal cannabis companies and according to an SEC filing has been investing in cannabis-related companies since 2013.  Unlike some of the other cannabis SPACs, Merida is led by a team that has helped build and operate some of the most sophisticated cannabis cultivation facilities and have made a series of large investments in a broad spectrum of cannabis-related companies ranging from data analytics companies to hydroponic suppliers.

The month prior to Merida being approved to trade on the Nasdaq, the company announced an IPO of 12 million units at $10 each. The offering was expected to raise up to $120 million and we are monitoring how the management team is able to put the capital to work. We are favorable on the experience that the management team has in the cannabis industry and believe that Merida is an opportunity to be aware of.

Ayr Strategies: A US Growth Story to be Aware of

Ayr Strategies Inc. (CSE: AYR.A, OTCQX: AYRSF) is a vertically integrated multi-state operator in the US cannabis industry, with an initial portfolio of assets that are based in Massachusetts and Nevada. Through its five operating companies, AYR is a leading cultivator, manufacturer and retailer of cannabis products and branded cannabis packaged goods.

Last year, AYR Strategies announced a major milestone and reported to have filed its business acquisition report for the acquisition of Washoe Wellness, The Canopy NV, Sira Naturals, LivFree Wellness, and CannaPunch of Nevada. We are favorable on the brands and the types of assets that were acquired by the business and will monitor how the story continues to evolve.

Going forward, AYR is looking to create regional clusters in core geographies for future expansions, while pursuing strong organic growth within its existing portfolio. We are favorable on the assets that are owned by the business and believe that Ayr is in the early innings of a major growth cycle.

Although Ayr has reported several significant developments so far this year, the trend has been mixed with momentum recently trending to the upside. We are favorable on how the shares have recovered and have come off its March lows. We believe that Ayr is an opportunity to be aware of and will keep an eye on the trend from here.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.


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