An Introduction to Cannabis SPACs

This article will outline some killer investment opportunities in Cannabis SPACs. “What is an SPAC?” you may be wondering. A SPAC (Special Purpose Acquisition Corporation) is a publicly traded company that raises a blind pool of capital from an IPO (initial public offering) in order to acquire an existing company or companies. The money raised is put into a trust until the SPAC identifies an acquisition target. This type of asset is interesting as the purchaser of shares has only a faint idea what they will ultimately have bought until the SPAC acquires a company.

Cannacord Genuity (TSE:CF)

In the booming cannabis industry it is no surprise that smart investors are using SPACs to raise hundreds of millions of dollars to purchase proven businesses and buy up an empire instead of building one from the ground up. Canadian investment bank Cannacord Genuity (TSE:CF) has been one of the leading underwriters of cannabis stocks by volume so it may come as no shock that they have been especially active in underwriting special purpose acquisition corporations in the cannabis sector. In addition to their own two SPACs, Cannacord Genuity Growth Corp. (NEO: CGGC) and Canaccord Genuity Growth II Corp.(NEO:CGGZ.UN), Cannacord has helped launch cannabis SPACs Ayr Strategies Inc. (OTC: CBAQF) and Mercer Park Brand Acquisition Corp. (NEO: BRND.U).

All these SPACs trade on the Aequitas Neo Exchange Inc, a relatively new and less-known Canadian stock exchange which is backed by a group of financial institutions (including the Royal Bank of Canada) and mostly lists small exchange-traded funds. The Toronto Stock Exchange recently said that any issuer who is operating in violation of federal drug laws in the United States is breaching its listing policies. This may be why SPACs with a desire to invest in the state-legal cannabis market in the U.S. are opting to list on the Neo exchange.

Ayr Strategies Inc. (OTC: CBAQF)

This former SPAC (previously known as Cannabis Strategies Acquisition Corp, the name it IPO’d with in December 2017) is now a full fledged vertically-integrated cannabis company with operations in the United States.The U.S. cannabis market is estimated to be worth around $13 billion (for all legal use cases) and this number is expected to grow to $26 billion by 2025. Ayr Strategies trades at a deep discount to its cannabis industry peers despite its stellar profitability. The capital Ayr raised in its SPAC IPO was used to purchase high-quality US cannabis assets (including brands) in order to construct an “anchor portfolio.” Ayr has vertically integrated operations in Nevada and Massachusetts (both states have legalized medical and recreational cannabis use for adults) and is a leading integrated cultivator, manufacturer and retailer of cannabis packaged goods. The portfolio includes Canopy NV, CannaPunch NV, Highly Edibles, Nordic Goddess and Washoe Wellness.

Mercer Park Brand Acquisition Corp (NEO: BRND.U)

This newly formed SPAC just started trading on the Neo Exchange in May 2019. The company raised $402 million (US) to invest in businesses that operate in the cannabis and/or cannabis-adjacent branded product industries in addition to businesses that have additional strategic capabilities i.e. distribution, manufacturing or product development. Mercer Park will focus on acquiring one or more cannabis companies with an estimated aggregate enterprise value of $300-$800 million (US).

Featured image courtesy of Shutterstock. Charts via Yahoo Finance.