Cannabis Deal Tracker: Investment and M&A Activity in the Cannabis Industry April 11th, 2022 - April 15th, 2022

April 20, 2022 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS

CAPITAL RAISES

Transactional Activity: There was one more transaction but a $311.6 million lower volume than the prior week. Compared to last year's same week, four fewer transactions closed with a $13.2 million higher volume. The average deal size was $15.0 million this week vs. $5.8 million in the same week last year.

Cannabis stocks, as measured by the MSOS ETF, were down 6.23% for the week and were down 27.7% for the year going into the holiday weekend. MSOS was down an additional 4% on Easter Monday, closing in on a 52-week low. Part of the issue is the downbeat prognosis for cannabis banking reform or other federal legalization moves. Viridian's Expert Series speakers did not convey a very hopeful tone, and then Schumer announced he was postponing introducing his bill until August. The hope had been that he would introduce the bill, and it would quickly become evident that it had no chance of passage, upon which attention would turn to some mildly socially augmented version of the Safe Act. Now it just seems to all be on hold.

The Viridian Capital Chart of the Week copied below shows another factor that makes the location of the market bottom more difficult. Between the beginning of 2022 and Easter, analysts cut their 2023 EBITDA estimates for the tier one MSOs by 9% to 25%. Analysts cut both revenues and margins, and we were surprised by both the magnitude and the fact that every tier-one competitor had meaningful reductions.

It's not just the tier one cultivators that are feeling the pain. We created equal-weighted baskets of companies from the Viridian Value Tracker database for each of seven subsectors of the cannabis market and looked at how the baskets had performed YTD. Each basket is composed of large and small companies in that business and U.S., Canadian and International competitors. Cultivation and Biotech have faired the best, while software and Psychedelics have done the worst.

Consolidation activity is the best bet to support the market, and we continue to believe other significant public/public deals will occur in 2022.

The New Jersey Cannabis Regulatory Commission provided the week's most positive news, approving seven of the state's 12 existing medical licensees to begin selling recreational cannabis. Public companies approved Included Acreage Holding (CSE: ACRDF), Ascend Wellness (CSE: AAWH), Columbia Care (CSE: CCGW), Curaleaf (CSE: CURA), Green Thumb (CSE: GTII), TerrAscend (CSE: TER), and Verano (CSE: VRNO). AYR (CSE: AYR.A) was notably absent from the list.

Cannabis capital raises are off 68% YTD. Reduced equity issuance (down 75% y/o/y in the U.S. and 95% in Canada) was partially compensated for in the U.S. by solid debt issuance (up 393% y/o/y, however, Canada's debt decline of 89% brought total debt issuance down by 18%l. As the graph below shows, capital raises for the first fifteen weeks of 2022 were dominated by U.S. activity. A higher percentage of capital raises came from international locations than any recent year's corresponding period.

The Cultivation & Retail sector has had an even steeper drop in capital raises. The chart below shows the virtual absence of U.S. equity raises YTD and the dominance of U.S. debt over all other categories.

There were only four closed capital raises for $59.8M this week, and there continues to be a dearth of large deals. By this time last year, there had been 16 equity transactions over $100m versus only one in 2022. The graph below shows the sea change in financing as debt (light green) replaced equity (dark green) as the market slid. The one conspicuous large dark green bar on the right is last week's IIPR transaction.

EQUITY

There were only four closed capital raises for $59.8M this week, and there continues to be a dearth of large deals. By this time last year, there had been 16 equity transactions over $100m versus only one in 2022. The graph below shows the sea change in financing as debt (light green) replaced equity (dark green) as the market slid. The one conspicuous large dark green bar on the right is last week's IIPR transaction.

Largest Equity Raise: On April 14, 2022, Backbone Software Inc., a San Francisco-based software platform designed to enable companies to respond to supply chain disruptions, closed a $14M seed financing.

Backbone's "supply chain mesh" helps companies respond to supply chain disruptions by surfacing replacement options, including vendors.

Investors included Nautilus Ventures, 12/12 Ventures, and individual investors, including John Battelle( Wired) and Brian Taylor (Oracle).

Current customers include Cookies, TerrAscend, and Clever Leaves.

Proceeds will be used to onboard new customers, expand into new markets, and further develop the company's supply mesh technology.

A Second Software Equity Raise: On April 12, 2022, LeafTrade, whose technology platform facilitates ordering and fulfillment for purchasers and sellers of wholesale cannabis products, raised $12.5M in a Series B Preferred round.

LeafTrade's system is used by cultivators, retailers, distributors, processors, and dispensaries in over 24 states and facilitates over $2B in annualized sales.

Proceeds will fund expansion in mature West Coat markets.

Artemis Growth Partners led the financing round

Public Company Listings: Two of the four companies that raised capital this week were public. Both companies trade in Canada (one each on TSX and the CSE), the US (one on OTCQB and the other on OTCQX).

Equity vs. Debt Cap Raises: Equity accounted for three of the week's capital raises and 46.7% of the funds raised.

DEBT

As a percentage of trailing 4-week capital raises, Debt plunged to 9%, its lowest level since April 2021. This anomaly is caused by last week's sizeable IIPR equity issue against a backdrop of very light capital raise weeks. We foresee a strong debt issuance climate ahead as MSOs and SSOs continue to require incremental cash for expansion

initiatives and are loathe to issue equity at current prices.

The Week's Only Closed Debt Raise: On April 11, 2022, Harborside Inc. (CSE: HBOR) closed the second $31.9M tranche of its $77.3 financing with Pelorus Equity Group. The first tranche of $45.4M closed in March, supporting Harborside's closing of the UrbnLeaf acquisition. The second tranche is in conjunction with the closing of the Loudpack acquisition.

• The two acquisitions, along with last year's Sublime deal, give the combined entity a run rate revenue of approximately $220M based on annualized numbers from the third quarter, placing it in the leadership position of California competitors.
• Below are some rough estimates of what the combined entity looks like based on limited public information.

Based on the above analysis, we believe the Pelorus debt pricing of 10.25% (plus fees) is fair. Harborside (soon to be renamed SateHouse) has debt to market at the 75 percentile level of the 16 U.S. Cultivation & Retail companies we track with market caps between $20M and $300M. Still, a solid business position somewhat made up for this higher leverage. We are waiting for more clarity in the consolidated numbers to include StateHouse in the Viridian Credit Tracking model.

MERGERS & ACQUISITIONS

Transactional Activity: Four M&A transactions closed this week with a total disclosed transaction value of $28.55M compared to ten transactions for $218.79M in the prior year.

Total YTD M&A volume is up 1.1% from 2021, with $3.25BM in consideration and 66 deals closed. Public buyers have accounted for 80% of the transactions and 81% of total consideration compared to 82% and 99%, respectively, in 2021.

U.S. Transactions have been weaker, with total consideration down 12% and 41% fewer transactions. The average transaction size of $52M is up approximately 50% and is expected to grow considerably as large public/public transactions such as Verano / Goodness Growth and Cresco/ Columbia Care close.

Major Pending Deals Risk Arb

Cresco/Columbia- a deal with a long-time horizon and significant challenges to completion:

• Significant overlaps require asset/license sales.
• Significant integration challenges
• Relatively low initial premium to market paid.

The Cresco/Columbia deal spread has widened to new highs, settling at 17.6% on 4/19. The key driver of this spread is the time to close. To play this spread, one would have to short Cresco and buy Columbia Care, but it is expensive and difficult to maintain that short position over an extended period.

Verano/ Goodness Growth - a transaction we believe will close in the 2nd quarter of 2022. The 5.8% is typical for transactions expected to close soon but with relatively illiquid stocks. Verano has still not filed its year-end statements but held a conference call to explain the delay. We continue to believe this transaction will close in Q2.

The valuation gap between the largest MSOs and the less than $300M market cap group, which are their primary targets, has been a significant driver of M&A activity since it creates the regular opportunity for accretive transactions. This week, this gap narrowed to about 2.8 points, the lowest since we began tracking it. Interestingly, we can observe that the value gap tends to widen when stocks gap upward and decline when they have significant downdrafts (like this week and last). We believe this gap will widen to more normal levels as the cannabis stock market finds its feet. Although this is an inhibitor for financially driven transactions, we have been commenting that the consolidation phase is now moving to a more strategically driven state.

The valuation gap between the largest MSOs and the less than $300M market cap group, which are their primary targets, has been a significant driver of M&A activity since it creates the regular opportunity for accretive transactions. This week, this gap narrowed to about 2.8 points, the lowest since we began tracking it. Interestingly, we can observe that the value gap tends to widen when stocks gap upward and decline when they have significant downdrafts (like this week and last). We believe this gap will widen to more normal levels as the cannabis stock market finds its feet. Although this is an inhibitor for financially driven transactions, we have been commenting that the consolidation phase is now moving to a more strategically driven state.

VIEW DEAL TRACKERS

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

Launched in January 2015, and having analyzed more than $60B in deals, the Viridian Cannabis Deal Tracker is a proprietary data service that monitors and analyzes capital raise and M&A activity in the legal cannabis and CBD industries. Each week the Deal Tracker provides proprietary data and market intelligence on transactions, including:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)
• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A)
• Principals to the Transaction (Issuer/Investor/Lender/Acquirer)
• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)
• Deals by Location of Issuer/Buyer/Seller ( To Track the Flow of Capital and M&A Deals by State and Country)
• Credit Ratings (Leverage and Liquidity Ratios)

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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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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.

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