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Cannabis Deal Tracker: Investment and M&A Activity in the Cannabis Industry September 13th - September 17th, 2021

 

September 22, 2021 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS

CAPITAL RAISES

  • Transactional Activity: There were four more transactions and a $26.6 million higher volume this week than in the prior week. Compared to last year's same week, two more transactions closed with a $9.3 million higher volume. The average deal size was $4.3 million this week vs. $4.1 million in the same week last year.
  • Only $28.7M in equity raises closed this week, significantly below the YTD weekly average of $165M.
  • Cannabis stocks were modestly higher for the week, with the AdvisorShares Pure U.S. Cannabis ETF up 4.3%.
  • Big gainers and losers for the week included:
  • Total capital raised YTD in 2021 of $9.36B is now approximately $1.1B lower than the same period in 2019 (the previous peak year); however, U.S. capital raises are far more robust. U.S. equity raises are up by $448M (12%), and U.S. debt raises are up by $748M (76%) compared to 2019. Canadian raises are off sharply, with equity raises down 49% and debt down 12%.
  • Largest Equity Raise: On September 17, 2021, Halo Collective Inc. (NEO: HALO)(OTCQB: HCANF), a vertically integrated cannabis company that cultivates, extracts, manufacturers, and distributes cannabis flower, oils, and concentrates, announced the closing of an at-the-market offering raising approximately $15.6M between May 4, 2021, and September 17, 2021.
    • The issuance of 443 million shares represented an increase of nearly 24% in shares outstanding but did not impact the stock more adversely than the overall market.
    • The deal implies a $75.9M enterprise value and an E.V./2021 annualized revenue multiple of 2.1x, a slight discount to the 2.43x median multiple we calculate in the Viridian Value Tracker for the 19 U.S. Cultivation & Retail companies with market caps of under $200M.
    • Halo has approximately $9.7 million of convertible debentures that mature in June 2022, and part of the use of proceeds listed for the ATM program was debt repayment.
  • Public Company Listings: All seven of the companies that raised capital this week were public. All seven trade in Canada (four on the CSE, two on TSX, and one on NEO) in all seven trade in the U.S. on the OTC.
  • Equity vs. Debt Cap Raises: Equity accounted for four of the seven raises and 94.4% of capital raised.
  • Largest Debt Raise: On September 15, TransCanna Holdings (CSE: TCAN) (OTCPK: TCNAF), a vertically integrated, California-based cannabis operator, closed a $.91M unsecured convertible debenture offering
    • Coupon: 12%.
    • One year maturity.
    • Convertible into common units at $.67 per share (a 6.3% premium).
    • The low conversion premium and short maturity result in a relatively high effective cost of 22.4%, which strikes us as high. TransCanna ranks #11 out of the 19 U.S. cultivation and retail companies with market caps under $200M in the Viridian Credit Tracker.
  • Cap Raises by Sector: Five of this week's seven capital raises came from Cultivation & Retail, and two came from Infused Products & Extracts.
    • MERGERS & ACQUISITIONS

      • Transactional Activity: Two M&A transactions were completed this week, compared to five in the prior-year period. We have tracked 241 transactions YTD in 2021, compared to 61 in the same period last year. Public companies were the buyers in 85% of 2021 deals YTD compared to 91% in 2020.  
      • There have been 170 US targeted M&A transactions YTD with a record $6.4B in total consideration. Both transaction numbers and total consideration exceed the values recorded in each of the last two full years.
      • This week's largest M&A transaction was the 47th California targeted deal YTD, and both average deal sizes and total consideration are soaring.
      • Largest and Most Interesting M&A Deal of the week: On September 15, 2021, Glass House Brands inc. (NEO: GLAS.A.U)(OTCQX: GLASF), a rapidly growing vertically integrated California company, announced the closing of its acquisition of a 5.5 million square foot greenhouse facility in Southern California.
        • Transaction Highlights:
          • Trans Total Consideration of approximately $233 million ($158 million without earn-outs).
            • $93 million upfront cash.
            • $65 million in stock (6.5 million shares valued at $10/ share).
            • $75 million in earn-outs (based on performance for the 12 months commencing 30 months after CAPEX is completed at the facility).
            • The upfront cash consideration was reduced from $118 million to $93 million, preserving an additional $25 million in funds for buildout. 
          • The facility includes six greenhouses totaling approximately 5.5 million sq. ft.
            • Phase 1, which will total about 1.7 million sq ft., is expected to be completed in Q1: 22.
            • Phase 1 is expected to produce over 180,000 dry pounds of cannabis, expanding the companies capacity by 300%.
            • Phase 2, adding 2 million sq ft., is projected for 2023.
        • Action Highlights:
          • Glass House Brands, which became a public company through the June 29, 2021, de-spac transaction of Mercer Park Brand Acquisition Corp, has  ambitious growth plans:
            • Glass House currently operates approximately 500,000 sq ft of greenhouse space in Santa Barbara county. The current acquisition will expand by a factor of 10x when the facility is fully built. (phase 1 roughly triples capacity)
            • G.H. currently operates four dispensaries but plans to have 23 stores operational by H1:22.
            • The Glass House Farms brand has achieved rapid market share gains and currently has a #2 share in California Flower.
          • The company has made some missteps along the way. Several examples were highlighted on the company's 2nd quarter conference call:
            • The company opted to save $1-1.5 million by not replacing the heating system at its Padaro facility, which turned out to be a poor decision, resulting in reduced yields and higher costs.
            • The roof material chosen for the Padaro facility turned out to have a lower than planned light transmission, necessitating replacing the roofs in all five greenhouses.
          • Glass House's strategy of "growing indoor quality cannabis at very close to outdoor quality cannabis cost" correctly responds to trends we believe will intensify over the next few years.
            • In a world where interstate commerce in cannabis exists, we believe indoor, high-energy cost indoor cultivation in agriculturally less productive locations will become disadvantaged. The newer, high-tech greenhouses can provide climate-controlled conditions at significantly lower costs and nearly equivalent quality.
            • California is coming to grips with its massive under penetration of retail locations. The growth from fixing this problem will allow companies like Glass House to use the scale advantages. Ironically, this wave of new greenhouse cultivation comes right after major Canadian companies, including Aurora, Canopy, and Green Organic Dutchman, shuttered or sold large greenhouses.
            • ESG based investing is here to stay, and there is no "E" in indoor cannabis cultivation. We believe concerns about climate change will only accelerate, resulting in an eventual movement towards less energy-intensive production techniques. 
          • Moreover, Glass House seems poised financially for this growth:
            • Glass House essentially eliminated its outstanding debt through a preferred stock offering in the June quarter, which triggered the conversion of its outstanding Convertible Promissory Notes. 
            • Its new facility and land are unencumbered by debt.
            • Revenues are growing rapidly, and EBITDA is now positive.
            • The company appears poised for non-dilutive financing over the next year.
      • Public vs. Private: Eleven of this week's twelve acquisitions were made by public companies.  
      • M&A by Sector: The buyers and sellers in this week's deals were from the following sectors:

      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 (Pricing and Valuation)

      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 © 2021 by Viridian Capital Advisors

      All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher. No part of this material may be (I) copied, photocopied, or duplicated in any form, by any means, or (II) redistributed without Viridian's prior written consent.

      *Disclaimers

      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.

      Viridian Capital Advisors and its affiliates, as well as their respective partners, directors, shareholders, and employees, may have a position in the securities mentioned herein or may make purchases and/or sales from time to time. Viridian Capital Advisors, through broker-dealer services provided by Bradley Woods & Co. Ltd., (Member FINRA/SIPC), may act, or may have acted in the past, as a financial advisor to certain companies mentioned herein and may receive, or may have received, a remuneration for their services from those companies.

      The above information whether in part or in its entirety neither constitutes an offer nor makes any recommendation to buy or sell any securities.

      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.

      Marijuana remains illegal under federal law. The federal government does not recognize marijuana to have any medicinal value. Marijuana cultivation, possession, consumption, sales, and distribution are illegal under federal laws and also certain state laws. Investors in cannabis may be subject to law enforcement actions. Please note that there are differences in marijuana laws from one state, county, or city to another. Furthermore there are substantial risks associated with investing in cannabis companies, including, without limitation, changes in applicable laws, rules, and regulations, risks associated with the economic environment, the financing markets, and risks associated with a company's ability to execute on its business plan.

      Contact Us:

      Viridian Capital Advisors, LLC
      contact@viridianca.com

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