September 29, 2021 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS
Transactional Activity: There were three fewer transactions but a $53.6 million higher volume this week than in the prior week. Compared to last year’s same week, five fewer transactions closed with a $37.3 million higher volume. The average deal size was $21.0 million this week vs. $5.2 million in the same week last year. The average deal size this week was skewed upward by the $70M Skymint debt deal.
Only $14.0 in equity raises closed this week, significantly below the YTD weekly average of $153M.
Cannabis stocks were modestly higher for the week, with the AdvisorShares Pure U.S. Cannabis ETF up 3.3%. The gains were driven by market hopes that the House passage of the Safe Act (in defense bill clothing) would lead to action in the Senate, a prospect we find doubtful.
Big gainers and losers for the week included:
Total capital raised YTD in 2021 of $9.44B 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 $410M (11%), and U.S. debt raises are up by $809M (82%) compared to 2019. Canadian raises are off sharply, with equity raises down 49% and debt down 13%.
Largest Equity Raise: On September 21, 2021, Skymint (Private), Michigan’s leading vertically integrated cannabis company, announced the closing of an $8 million equity raise from Merida Capital Holdings, in conjunction with a $70 million debt raise and an M&A transaction.
- SKYMINT did not disclose its pre-money valuation or any valuation metrics like EV/2022 revenues. SKYMINT is private, and its financials are not available.
- Mitch Baruchowitz, CEO of Merida, will be joining SKYMINT’s Board after the transaction.
Public Company Listings: All four of the companies that raised capital this week were private. Capital has gravitated towards public companies in recent years. We have to go back to December 2019 to find another week when all the capital raises were for private companies.
Equity vs. Debt Cap Raises: Equity accounted for three of the four raises and 16.7% of capital raised.
Largest Debt Raise: On September 21, 2021, SKYMINT closed a concurrent $70 million Senior Secured Term Loan.
- Terms of the Loan, including interest rate, term, OID, and or equity participation, if any, were not disclosed.
- Proceeds are expected to fund the acquisition of 3Fifteen Cannabis and expand the companies cultivation and dispensary operations.
- The lender is Tropics LP, an affiliate of SunStream Bankcorp, a JV of Sundial Growers inc. (Nasdaq: SNDL).
- Sundial has C$538M committed to the Sunstream JV for credit investments.
- We have applauded Sundial management for taking advantage of Its “meme” stock status to raise approximately US$1B YTD and to deploy these funds aggressively in both debt and equity investments.
Cap Raises by Sector: Three of this week’s four capital raises came from Cultivation & Retail, and one came from Software/Media.
MERGERS & ACQUISITIONS
Transactional Activity: Eight M&A transactions were completed this week, compared to two in the prior-year period. We have tracked 249 transactions YTD in 2021, compared to 63 in the same period last year. Public companies were the buyers in 85% of 2021 deals YTD compared to 90% 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.
One of this week’s M&A deals targeted the Software/Media sector, which has been red-hot in 2021. The $1.6B transaction value YTD in 2021 dwarfs each of the two previous years, even if we don’t count the $855M Weed Maps transaction.
Most Interesting M&A Deal of the week: On September 21, 2021, SKYMINT announced its acquisition of 3Fifteen Cannabis, a retail operator in Michigan and a portfolio company of Merida Capital.
- The transaction’s financial terms were not disclosed, including the amount and composition of total consideration and any valuation metrics.
- 3Fifteen has 12 dispensaries in operation, which brings the combined company to 27 operating dispensaries. SKYMINT plans to open three additional dispensaries in 2021 and 15 more in 2022.
- SKYMINT currently has two indoor cultivation facilities totaling 77k sq. ft, with a third indoor facility totaling 184k due to come online in 2022.
The acquisition sets up a heated battle with Gage/TerrAscend as the two largest consolidators in Michigan. The table below compares SKYMINT and Gage/TerrAscend.
Key Similarities/ Differences:
- SKYMINT has an initial lead in the number of dispensaries.
- SKYMINT appears to be more concentrated in several key markets with a strategy of dominating those markets, whereas Gage is more spread out. The two companies compete directly in a few markets, like Grand Rapids, Lansing, and Detroit, but generally, their locations are distinct.
- Neither company has a wholesale presence in Michigan, electing to cultivate and produce only for their stores.
- They both have a similar ratio of cultivation square footage to dispensaries.
- Gage has four co-branded stores (3 Cookies, 1 Lemonnade), whereas SKYMINT does not. Gage is the exclusive brand partner for Cookies in Michigan.
- Gage makes use of 10 contract growers, whereas SKYMINT does not use contract growers. The greater flexibility of contract growers would give Gage an advantage in a declining wholesale price environment (which Michigan is experiencing) and gives Gage the ability to react to changing competitive conditions. The flipside of this argument is that having cultivation in-house gives SKYMINT better control over operations and may allow for more consistent quality.
- Although both companies are well-financed, Gage has greater financial strength through its ownership by TerrAscend.
Conclusion: too close to call, but the battle will undoubtedly be one to observe closely. We expect both companies to move quickly to establish high market shares to delay the entrance of other large competitors.
Public vs. Private: Six of this week’s eight acquisitions were made by public companies.
M&A by Sector: The buyers and sellers in this week’s deals were from the following sectors:
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.
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