Cannabis Deal Tracker: Investment and M&A Activity in the Cannabis Industry March 8th - March 12th, 2021

March 17, 2021 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS

CAPITAL RAISES

• Transactional Activity: There were six fewer capital raises but $152.2 million higher volume this week than in the prior week. Compared to the same week last year, eight more transactions closed with $311.0 million higher volume. The average deal size was $24.5 million this week vs. $1.6 million in the same week last year.
• Cannabis stocks rebounded this week, and the price of our basket of 25 cannabis stocks was up 8.6% for the week. The market responded positively to the stimulus bill's passage and signs of a resurgent economy despite continued increases in treasury rates.
• With two weeks left in the quarter, U.S. Equity Issuance is poised to exceed the previous quarterly record of $1.98 billion set in the 4th quarter of 2018.
• Largest Equity Raise: On March 11th, 2021, Organigram Holdings (TSX: OGI)(Nasdaq: OGI), the eighth largest Canadian LP, raised $176.3 million by selling 58.3 million common shares at $3.02 per share to a wholly-owned subsidiary of British American Tobacco (LSE: BATS)(NYSE: BTI). Following the transaction, BTI will own 19.9% of OGI, BTI and OGI will form a product partnership and develop a "Center of Excellence" to develop new cannabis products.
  • The deal values OGI at approximately 9.8x 2021 consensus revenue estimates, close to the 9.83x median for the nine Canadian cultivation and retail sector companies in the Viridian Value Tracker with market caps of more than $500 million.
  • OGI's investors have responded enthusiastically. The stock traded up 46% to $4.41 at the end of the week.
  • The investment in OGI makes excellent strategic sense for BAT:
    • BAT, like other tobacco companies, has been struggling with declining tobacco consumption
    • There are clear commonalities in consumption devices and methods.
    • U.S. laws prevent the purchase of a large U.S. MSO, and several other Canadian LPs have already partnered with other alcohol or tobacco companies.
    • OGI was reasonably priced compared to other LPs.
  • But past strategic alliances with Canadian cannabis companies have failed to live up to their promise:
    • Constellation eventually had to throw out Canopy management and take the reins. Altria's investment has done little but fund ongoing negative cash flow at Cronos, and Imperial Brands is the proud owner of an underwater convert. The telling question is whether given a chance at a "do-over," would any of these investments still exist?
• Verano Holdings (CSE: VRNO) closed the second-largest equity deal of the week on March 11th with its sale of 3.51 million shares at $22.74 per share for total proceeds of $79.81 million. The deal values Verano at approximately $6.5 billion or about 19.9x consensus 2021 EBITDA estimates, a slight discount to the 20.6x median we show in the Viridian Value Tracker of U.S. Cultivation and Retail sector companies with more than $1 billion in market cap. Proceeds will be used for acquisitions and working capital.
• Public Company Listings: All ten public companies that raised capital are listed in Canada (five on the CSE and five on the TSX). Seven of the ten also trade on other exchanges (five on the OTC, one on Nasdaq, and one on the FSE.)
• Equity vs. Debt Cap Raises: Equity-based capital accounted for ten of this week's thirteen capital raises and accounted for 95.6% of the total capital raised.
• Largest Debt Raise: On March 11th, Flower One. (CSE: FONE)(OTCQX: FLOOF) announced closing the second tranche of ifs convertible debenture offering led by JW Asset Management. The tranche includes 8,751 convertible bond units consisting of a 9%, C$1000 convertible debenture, and 1923 three-year common share warrants (75% coverage with a 34.5% exercise premium.) The "at-the-money" conversion price of the debentures along with the warrants makes for expensive financing that we estimate to have an effective cost of 26.3%.
• Cap Raises by Sector: There was a highly diverse mix of sectors represented in this week's capital raises. Of the 13 companies which raised capital this week, nine came from the Cultivation & Retail sector, and one from Software/Media, Investments/M&A, Agriculture Technology, and Hemp.

MERGERS & ACQUISITIONS

• Transactional Activity: Eleven M&A transactions were completed this week, up from one in the prior-year period. We have tracked 47 transactions in 2021, the second-lowest since the 17 recorded in the same period in 2020, only 60% of the 78 deal record set in the first nine weeks of 2019. However, the pace is increasing.
• M&A activity continues to heat up, and more deals are closing. We expect to see this picture continue based on the number of announced but not yet completed deals.
• Largest M&A Transaction: On March 11th, Surterra San Marcos, an indirect subsidiary of Parallel, one of the largest private MSO's in the U.S., completed a $27.4 million sales leaseback transaction with Innovative Industrial Properties (NYSE: IIPR) for a property in San Marcos, Texas along with the construction of three buildings which will total 63,000 square feet.
• Public vs. Private: Eight of this week's eleven 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: Two of the buyers in this week's transactions came from the Cultivation & Retail sector, two came from the Biotech/Pharma sector, two came from the Hemp sector, and one each came from Software & Media, Investments/M&A, Real Estate, Software/Media, Miscellaneous, and Infused Products & Extracts.

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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