Cannabis Deal Tracker: Investment and M&A Activity in the Cannabis Industry January 11th - January 15th, 2021

January 20, 2021 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS

CAPITAL RAISES

• Transactional Activity: There were four more capital raises and $510.8 million higher volume this week than in the prior week. Compared to the same week last year, there were five more transactions and a $356.4 million higher volume. This week's average deal size was $70.4 million vs. $69.0 million in the prior-year period.
• Responding to soaring stock prices after the Senate flip, cannabis companies issued $503 million of equity in the second week of 2021, exceeding the amount from any week since mid-July 2019 when the issuance was dominated by the $575 million Subversive Capital SPAC IPO.

• Three of the ten largest U.S. cultivation & retail sector equity deals in history were completed this week. Capital raising prowess doesn't necessarily lead to business success, however. Three of the largest ten deals were completed by Acreage Holdings, a company that has not scaled nearly as successfully as this week's issuers. 

• Interestingly, AYR Strategies and Columbia Care, two of this week's issuers, were both born out of SPAC's, and neither was trading publicly before the 2nd quarter of 2019.

• Largest Equity Raise: On January 12th, 2021, Curaleaf Holdings Inc. (CSE: CURA)(OTCQX: CURLF), the largest U.S. MSO by market cap, announced the closing of a C$316.9 million (US$249.3 million) overnight marketed offering of 18.98 million shares at C$16.70 (US$13.14) per share. 
• The shares were priced at 8.0% below the price on the announcement date, a minor discount considering the transaction was the largest equity raise for a U.S. MSO except since the company's US$400 million private placement in October 2018.
• The transaction values Curaleaf at 7.4x consensus 2021 revenue and 23.8x EBITDA, modest premiums to the 4.7x  and 21.8x we calculate for the 15 cultivation & retail sector companies we track with analyst coverage and over $100 million of market cap.
• The combination of the equity raise and the new revolving credit slightly increases the company's debt/market cap (from .05X to .08x) but significantly increases liquidity.

• The two other large equity issues of the week (AYR and Columbia Care) were both done at relatively small discounts to their pre announcement prices (5.8% and 8.0%, respectively) despite meaningful increases in shares outstanding (11.9% and 8.5%, respectively). The stocks have performed quite differently, with Columbia's price rising almost 16% since the issue and AYR's declining close to 1%.

• Public vs. Private Cap Raises: All eight of this week's capital raises were closed by public companies. Public companies completed 100% of capital raises year-to-date compared to the same period in 2020 when public companies raised 71% of the deals and 94% of the capital. There has been a consistent trend towards public company capital raises, taking advantage of newly robust capital market conditions.

• Public Company Listings: All eight public companies which raised capital are listed on the CSE in Canada,  Seven of them are also on the OTC in the U.S., and one is on the Nasdaq.

• Equity vs. Debt Cap Raises: Equity-based capital accounted for five of this week's eight closed raises and 89% of raised proceeds.

• Largest Debt Raise: On January 11th, Curaleaf Holdings. (OTC: CURL) announced the closing of a US$50 million 3-year, senior secured revolving credit facility with a 10.25% interest rate. The company announced that it had fully drawn the facility. 
• This rate for a three-year facility demonstrates the yield compression we have talked about for the last quarter. Top-tier MSOs can now access debt capital in the low double digits and without equity kickers - a far cry from the industry's situation as recently as mid-2020.
• What may be even more critical, however, is the revolving credit nature of this facility. Cannabis lenders have not been quick to fund standby credit facilities, so this deal confirms the entrance of new institutional money.

• The other two debt issues of the week were of a decidedly different complexion.
• Ionic Brands and MedMen have extremely high debt/ market cap ratios (3.49x and 3.64x, respectively) that are indicative of distressed debt.
• It seems likely that the MedMen deal could not have been completed if Gotham Green wasn't already pregnant with MedMen. Gotham arguably wants to maintain its optionality and keep the company alive in hopes of better days and an exit post-legalization. The MedMen transaction carried a high effective cost of 41.86%, after incorporating the conversion option's value and the additional 100% coverage in long-dated at the money warrants.

Cap Raises by Sector: Six of the eight companies that raised capital this week came from the Cultivation & Retail sector, while one was from Biotech/Pharma and one was from Infused Products & Extracts. Six of the eight companies that raised capital this week came from the Cultivation & Retail sector, while one was from Biotech/Pharma and one was from Infused Products & Extracts.  

MERGERS & ACQUISITIONS

• Transactional Activity: Three M&A transactions were completed this week, up from one in the prior-year period. We continue to see signs of accelerating M&A activity, with over $1 billion of announced deals still too close. Notwithstanding the qualifying transaction completed this week by Subversive (described more fully below), we expect the ticking time clock facing the SPACs will be an increasingly intriguing story in 2021. Prices of assets have run up, so finding deals that will pass muster with SPAC investors is getting more difficult.
• Largest M&A Transaction: On January 15th Subversive Capital Acquisition Corp., formerly the largest cannabis SPAC, announced the formation of "The Parent Company" as its qualifying transaction. The rollup of Caliva and Left Coast Ventures, with the participation of icon "Jay-Z" Carter, forms the largest vertically integrated cannabis operation in California. The total consideration of $752 million includes shares valued at $425 at closing and additional payments of approximately $327 million contingent on the Parent Company's stock performance. The transaction value represents a 2.25x multiple on combined Caliva and Left Coast projected revenues of $334 million.
• In another intriguing transaction, Hydrobuilder Holdings was formed by acquiring Hydrobuiler.com, a leading online retailer of specialty agriculture products and hydroponics equipment, and GreenCoast Hydroponics, the second-largest hydroponics retailer in the U.S. A group led by Broadband Capital Investments invested over $70 million to fund the transaction. Owners of both acquired businesses will retain an interest in Hydrobuilder Holdings. Viridian Capital Advisers provided sell-side M&A advisory services to GreenCoast.
• Cresco announced the second significant acquisition of a public cannabis company with its planned $213 million purchase of Florida integrated competitor Bluma Wellness. Historically, the large majority (86% in 2020) of cannabis industry deals have had private company targets. We believe we are likely to see more well-positioned public single state operators getting purchased by larger MSOs as the year unfolds.
• Public vs. Private: This week's two acquisitions were both made by public companies. With the recent surge in cannabis stock prices, we expect public companies to make add-on purchases of private companies using primarily stock as currency.
• M&A by Sector: Two of the buyers in this week's transactions came from the Investment and M&A sector, while the other came from the Infused Products & Extracts sector. The targets came from three different sectors: Cultivation & Retail sector, Infused Products & Extracts, and Agricultural Technology

VIEW DEAL TRACKERS

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.

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The information contained herein is for informational purposes and is not intended as a research report. It should not be construed as Viridian recommending investment in cannabis companies or as a solicitation to buy or sell any security or engage in a particular investment strategy. Investment in cannabis companies entails substantial risk. Before acting on any information, you should consider whether it is suitable for your particular circumstances and consult all available material, and, if necessary, seek professional advice.

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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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