Cannabis Deal Tracker: Investment and M&A Activity in the Cannabis Industry December 7th - December 11th, 2020
December 16, 2020 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS
- Transactional Activity: Week 50 ended December 11th, 2020, saw a $160.5 million volume increase with one more transaction vs. the prior week of this year and a $155.2 million increase with four more transactions vs. the prior-year period. We tracked five capital raise transactions totaling $165.2 million, vs. one transaction totaling $10.0 million during the same week in 2019. The average tranche size was $33.0 million this week, vs. $10.0 million in the prior-year period.
- Largest Cap Raise: On December 10th, 2020, AYR Strategies Inc. (CSE: AYRA)(OTCQX: AYRWF), the 7th largest U.S. MSO by market cap with pro forma operations in Massachusetts, Nevada, Pennsylvania, Arizona, and Ohio, completed a $110 million, four-year maturity, senior secured note deal with a 12,5% coupon priced at a small discount to yield 13%. The issue is secured by a pledge of the company's restricted subsidiaries' stock and is guaranteed on a senior unsecured basis by those same subsidiaries. The deal structuring gives bondholders adequate protection while allowing future financing flexibility for the company. Proforma for this transaction, AYR will have total debt of approximately $153 million and a debt/market cap of under .20, maintaining its high place in the Viridian Credit Tracker ranking system. This transaction marks a turning point for cannabis debt. Previously, only two major plant-touching companies had been able to complete debt deals with no equity kickers either in terms of convertibility or additional warrants or both, and these non-dilutive deals were all done pre-COVID. Equity-linked features, as we have chronicled here, significantly increase the effective cost of debt financing. Investors' willingness to purchase straight cannabis debt should further spur the issuance of debt to finance the buildout of the new cultivation and retail infrastructure of the markets that have recently turned or are expected to turn adult use. Non-dilutive financing will still be limited to the stronger credits, but the list of candidates is increasing. This week's Viridian Chart of the Week demonstrated the credit improvements we are tracking.
- Public vs. Private Cap Raises: Four of this week's five capital raises were closed by public companies. So far in 2020, public companies have accounted for 82% of all capital raises, vs. 64% 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 four public company capital raises, all are listed in Canada (2 on the CSE and 2 on the TSX), and all four also trade on the OTCQX.
- Equity vs. Debt Cap Raises: Equity-based capital accounted for three of this week's five closed raises and 32% of raised proceeds.
- Equity Raise: On December 10th, LeafLink (Private) announced the closing of a US$40 million Series C funding round, proceeds of which will be used to expand the company's offerings with new brands and retailers in newly opened adult-use markets. LeafLink has 130 employees operating in 27 markets and claims to have 32% of the U.S. wholesale cannabis market. This financing round is the company's fourth and brings total capital raised in the VC market to approximately $90 million.
- Cap Raises by Sector: The five capital raises this week were spread across three different industry sectors: two in Cultivation & Retail, two in Biotech/Pharma, and one in Software/Media.
- Transactional Activity: Week 50 saw one completed M&A transaction, down from three in the prior-year period. Although the number of M&A transactions completed year-to-date is down 72% vs. the comparable period of 2019, recently announced deals, newly adult legalized states, and the ticking of the SPAC timeclock all argue for near-term acceleration of M&A activity.
- Largest M&A Transaction: On December 10th, 2020, Hill Street Beverage Company Inc. (TSXV: BEER) (OTCQX: HSEEF) closed its acquisition of the primary assets of Lexaria Canpharm ULC, the cannabis-related division of Lexaria Bioscience Corp. Total consideration of US$3.02 million consisted of US$1.96 million of Hill Street stock, US$.27 million of cash and an earn-out of US$.78 million. This acquisition provides Hill Street with the exclusive rights in perpetuity to use Lexaria's ground-breaking DehydraTECHTM patent portfolio on a global basis to make any non-pharmaceutical product containing 0.3% or greater THC and other psychoactive cannabinoids. The technology increases bio-absorption, reduces onset time, and masks unwanted tastes.
- Public vs. Private: This week's sole acquisition was made by a public company. Year-to-date, 92% of M&A transactions closed in 2020 have been made by public companies (up from 71% in 2019). Particularly with the recovery in stock prices and fundraising ability, public companies have been the dominant acquirers in the cannabis industry. Private companies remain the principal targets for acquirers.
- M&A by Sector: The buyer in this week's transaction came from the Infused Products & Extracts sector, and the target was from the Biotech/Pharma sector.
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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