Cannabis Deal Tracker: Investment and M&A Activity in the Cannabis Industry November 16th - November 20th, 2020
October 25, 2020 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS
- Transactional Activity: Week 47 ended November 13, 2020, saw a $102.9 million higher dollar volume with 1 fewer transaction vs. the prior week of this year and a significantly higher dollar volume with two more transactions vs the prior-year period. We tracked 4 capital raise transactions totaling $185.68 million, vs 2 transactions totaling $15.2 million during the same week in 2019. The average tranche size was $46.4 million this week, vs. $7.6 million in the prior-year period.
- Largest Cap Raise: On November 16, 2020, Aurora Cannabis (NYSE: ACB) (TSX: ACB), the 4th largest Canadian LP by market cap, completed its previously announced overnight marketed public offering of 23 million units at US$7.5 per unit for total gross proceeds of US$172.5 million Each unit consisted of one common share and one half of a common share purchase warrant with a term of 40 months and an exercise price of C$2.5 US$9.00 per share (a premium of approximately 32%). We value this warrant at approximately US1.14 (US$0.57 per unit) giving a net stock price of US$6.93. The stock closed at US$6.81 per share on the transaction date, down approximately 39% since the company announced the capital raise on November 10. Aurora announced its Q1:2021 earnings on November 9th and they were disappointing on several fronts: 1) Revenue on the rec side was down 3% from the prior quarter, clearly indicating a loss of market share given the strong growth announced by its peers, 2) Adjusted EBITDA was down from -$32.2 million to -$57.9 million, and 3) Cash burn continues to be high with operations (excluding restructuring charges) using $25 million, working capital $37 million and capital spending $15 million. The company’s announced goal of becoming cash-flow positive in fiscal 2021, looks possible if it can accelerate revenues and continue to cut costs, however, the result is far from assured. Aurora currently trades at approximately 4.6X current year consensus revenue estimates, slightly higher than the 4.26 we observe for the 11 Canadian LPs in the Viridian Value Tracker with market caps over US$100 million, suggesting the stock may still have further downside if the company does not demonstrate a stronger movement towards cash flow positive status in the next quarter. The company’s proforma cash position of approximately $285 million gives it approximately 3 quarters of running room at its current free cash flow burn rate.
- Public vs. Private Cap Raises: All 4 of this week’s capital raises were closed by public companies. So far in 2020, public companies have accounted for 82% of all capital raises, vs. 65% for the same period in 2019. In 2020, public companies have accounted for 80% of total dollars raised, vs. 69% for the same period in 2019.
- Public Company Listings: Of the 4 public company capital raises, all are listed in Canada (2 on the CSE and 2 on the TSX), and all 4 also trade on other exchanges (1 on the NYSE, 1 on the NASDAQ, 1 on OTCQB, and 1 on the FSE).
- Equity vs. Debt Cap Raises: Equity-based capital raises accounted for all of this week’s closed capital raises.
- 2nd Largest Capital Raise: On November 16, InMed Pharmaceuticals (TSX: IN) (NASDAQ: INM), which is engaged in the research and development of cannabinoid-based therapies and biosynthesis system for the manufacturing of pharmaceutical-grade cannabinoids, closed its previously announced public offering of 1.78 million units at US$4.50 per unit for total gross proceeds of US$8.01 million. Each unit consisted of one common share and one warrant with a 6-year maturity and an exercise price of US$5.11 per share (a premium of approximately 13.6%). The long expiration date and low premium give this warrant a high value of approximately $1.11 per unit for a net share price of US$3.94. The stock closed at US$3.40 on the transaction date. InMed trades at approximately 5.4 times book value, a premium to the median of 4.25 times book value we observe in the Viridian Value Tracker for the 27 pre-revenue biotech companies we track with market caps below $50 million.
- Cap Raises by Sector: The 4 capital raises this week were spread across 3 different industry sectors with two in Cultivation & Retail, one in Biotech/Pharma, and one in Software/Media.
MERGERS & ACQUISITIONS
- Transactional Activity: Week 47 saw 2 M&A transactions, up from none in the prior-year period. Although the number of M&A transactions completed year-to-date is down 74% vs the comparable period of 2019, recently announced deals, newly adult legalized states, and the ticking of the SPAC timeclock all argue for a near-term acceleration of M&A activity and we are beginning to see signs of this
- Largest M&A Transaction: On November 18, High Tide Inc. (CSE: HITI) (OTC: HITIF), a company that engages in the manufacture and retail of cannabis accessories through brands including Famous Brandz, RGR, Smoker’s Corner, Canna Cabana, KushBar and Kush West, closed its acquisition of Meta Growth (TSXV: META). The combination creates a leading Canadian cannabis retailer with 65 locations and approximately $150 million in revenues. Consideration for the transaction was 196.0 million shares of High Tide, valued at approximately US$28.5 million. This price represents an EV/LTM revenue of app 1.2 X. In connection with the transaction, holders of more than 66 2/3% of META’s $21.15 million secured convertible debentures due November 2021, waived the change of control provisions in their indenture and extended the maturity date to November 2022. In exchange, the conversion price of the debentures was reset to $.22 per High Tide share (a premium of 47% to High Tide’s current price) from C$1.08 per META share (approximately equivalent to US$.65 per High Tide share considering the exchange ratio of the deal and the CDN/USD conversion rate). We calculate that the effective yield of the 8% convert, as amended is approximately 12% if priced at par, after taking into account the value of the new conversion options.
- Public vs. Private: Of this week’s two acquisitions, both were made by public companies. Year-to-date, 91% of M&A transactions closed in 2020 have been made by public companies (up from 72% in 2019). Public companies, particularly with the recovery in stock prices and fundraising ability, have been the dominant acquirers in the cannabis industry. Private companies remain the dominant targets for acquirers.
- M&A by Sector: One of the buyers in this week’s transactions came from the Consumption Devices sector and the other came from the Cultivation & Retail. Targets came from the Biotech and Cultivation & Retail sectors.
The Viridian Cannabis Deal Tracker is a proprietary information service that monitors capital raise and M&Amp;Amp;A activity in the legal cannabis and hemp industry. Each week the Tracker aggregates and analyzed all closed deals and segments each according to key metrics:
- Industry Sector (one of 12 sectors, from Cultivation to Brands)
- Dollar value of the transaction
- Region in which the deal occurred (country or U.S. state)
- Status of the company announcing the transaction (Public vs. Private)
- Deal structure (equity vs. debt)
- Key deal terms
The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&Amp;Amp;Amp;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&Amp;Amp;Amp;A transactions totaling over $45 billion in aggregate value.
*Copyright © 2020 by Viridian Capital Advisors
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About Viridian Capital Advisors, LLC
Viridian Capital Advisors (www.viridianca.com) is a financial and strategic advisory firm dedicated to the cannabis market. We are a data- and market intelligence-driven firm that provides investment, M&Amp;Amp;A, corporate development, and investor relations services to emerging growth companies and qualified investors in the cannabis sector. Our banking practice, through broker-dealer Bradley Woods & Co. Ltd. (Member FINRA/SIPC), provides capital and M&Amp;Amp;A services to fund the growth of our clients, while our advisory practice helps to position and build their businesses. Our team's decades of high level operating and transactional experience on Wall Street in a variety of emerging sectors, allows Viridian to provide comprehensive strategic and financial solutions that assist cannabis enterprises in realizing their full potential.
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