Cannabis Deal Tracker: Investment and M&A Activity in the Cannabis Industry February 15th - February 19th, 2021

February 24, 2021 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS

CAPITAL RAISES

• Transactional Activity: There were four fewer capital raises but $22.8 million higher volume this week than in the prior week. Compared to last year's same week, there was one fewer transaction but a $281.8 million higher volume. The average deal size was $39.8 million this week vs. $16.9 million in the same week last year.
• Equity issuance through the first seven weeks continues to be at historic levels. The $2.39 billion of closed deals in 2021's first seven weeks was 51% higher than the previous high set in 2018, driven by record-high average deal size.
• The U.S. is leading the way. As the graph shows, Canada dominated equity issuance in the first seven weeks of 2018, but the U.S. issuance in 2021 YTD exceeds the total from any previous comparable period. The large MSOs have outpaced the LPs in sales and profitability and are building capacity rapidly.
• Non-cultivation sectors have historically had a higher percentage of issuance in down years of capital raising, but even these sectors are setting new records.
• Four non-cultivation sectors are experiencing particularly standout quarters: Biotech/Pharma, Agriculture Technology, Infused Products, and Software/Media. Each of these sectors is above its previous record for the comparable period. This broadening of issuance to non-cultivation sectors is a positive sign that the capital raise boom has legs.
• We don't believe the equity issuance spree is over. We still expect Trulieve to make use of its jumbo mixed shelf, and despite the valuation gap that we pointed out in a recent Graph of the Week, we see signs that issuance is broadening to smaller companies and diverse sectors. The average market cap of companies issuing equity this week was only $313 million, and that figure would drop to $131 million without the warrant conversion raise from Sundial.
• Largest Equity Raise: On February 19th, 2021, Choice Consolidation Corp. (NEO: TCACU), a Chicago-based SPAC with senior management led by CEO Joe Caltabiano, the former CEO of Cresco Labs, closed a US$150 million IPO of 15.0 million units at US$10.00 per unit. The SPAC is listed on the NEO Exchange, offering maximum flexibility for plant-touching acquisitions. Choice broke new ground by providing only ¼ of share warrant per unit versus previous SPACs units that typically contained either ½ warrant or a full warrant. Choice is a sign of how hot the SPAC rage is and is a vote of confidence in the future of the cannabis equity market: investors must believe that SPACs can earn attractive returns from acquisitions completed at current levels.
• We find two other deals this week to be particularly interesting: Agrify ($75 million) and Urban-gro ($62 Million). Each of these issues was larger than any previous equity deal in the Agricultural Technology sector since Viridian began the Deal Tracker in 2015. Agrify is a developer of "premium grow solutions for the indoor agriculture marketplace," while Urban-gro is "a leading engineering design and service company focused on the commercial horticulture market." Urban-gro has three times the annualized revenues ($32 million) as Agrify but met a distinctly less hospitable reception in the market. The company recently uplisted to Nasdaq and pushed out an overly large issue that increased its outstanding shares by 155%. The market reacted violently, and the company was forced to price the issue at an 80% discount to its pre-announcement price. Agrify did a relatively smaller deal and only gave up a 29% discount.
• Viridian has been expecting a pickup in this sector: it just makes sense that as MSOs and SSOs expand their cultivation capacity in newly opened states, that attention would turn to systems that aid in maximizing the efficiency of those operations.
• Public vs. Private Cap Raises: All thirteen of this week's capital raises were closed by public companies. Public companies raised approximately 97% of the capital year to date in 2021, up from 93% last year. There has been a consistent trend towards public company capital raises, taking advantage of newly robust capital market conditions.
• Public Company Listings: Ten of the thirteen public companies which raised capital are listed in Canada (two on the NEO, four on the CSE, and four on the TSX). Twelve companies list in the U.S. (six on OTC and six on Nasdaq).
• Equity vs. Debt Cap Raises: Equity-based capital accounted for all thirteen of this week's capital raises.
• Largest Debt Raise: This was the second week in a row with no closed debt deals.
• There has only been $93 million of debt raised in the first seven weeks of 2021, roughly 34% of the amount raised in 2018, the next lowest recent year. We discuss this phenomenon more closely in this week's Viridian Capital Graph of the Week. The industry is in the best credit condition that it has ever been in (at least in the U.S.) and is poised for significant debt issuance when if and when equity market pricing undergoes a pullback.
• Cap Raises by Sector: There was a highly diverse mix of sectors represented in this week's capital raises. Four of the companies came from the Cultivation & Retail sector, three from Infused Products & Extracts, two from Investments/M&A, two from Agricultural Technology, one from Biotech/Pharma, and one from Software/Media.

MERGERS & ACQUISITIONS

• Transactional Activity: Three M&A transactions were completed this week, matching the number from the prior-year period. We have only tracked 21 transactions in 2021, the second-lowest since the 13 recorded in the same period in 2020 and far from the record pace of 58 set in the first seven weeks of 2018. The M&A deals are making up for their lack of numbers with impressive size, including last week's RTO of Verano. We continue to see signs of accelerating M&A activity, with a significant backlog of announced deals still to close.
• Largest M&A Transaction: On February 18th, Cresco Labs (CSE: CL), the fourth-largest MSO by market cap, announced the closing of its purchase of four Verdant Creations dispensaries in Cincinnati, Chillicothe, Newark, and Marion, Ohio. The acquisitions raise Cresco's dispensary count in Ohio to five, the most allowed by the state. Cresco is drawn to Ohio as it believes the market to be similar to the early medical markets in Pennsylvania and Illinois. The added dispensaries should boost Cresco's margins in the state, taking advantage of its existing cultivation and production capacity. Terms of the transaction were not disclosed.
• On February 16th, GrowGeneration (Nasdaq: GRWG), which owns and operates specialty retail hydroponic and organic gardening stores, closed its acquisition of Grow Warehouse, a four-stor3-21e chain of stores in Colorado and Oklahoma, with annual revenues of approximately $20 million. The deal is another indication of heightened interest in the agriculture technology sector. Terms were not disclosed.
• Public vs. Private: All three of this week's acquisitions were 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: The buyers in this week's transactions came from three different sectors: Cultivation & Retail, Agriculture Technology, and Hemp. Two of the targets came from non-plant-touching: Agriculture Technology and Miscellaneous Ancillary sectors, with the other coming from the Cultivation & Retail sector.

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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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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