May 12, 2021 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS
- Transactional Activity: There was one less capital raise and $135.7 million higher volume this week than in the prior week. Compared to the same week last year, four fewer transactions closed with a $278.4 million higher volume. The average deal size was $64.6 million this week vs. $15.8 million in the same week last year.
- Issuance bounced back this week with $316 million of total capital raised, but 2021 now trails 2019 in both equity and debt capital raised.
- The price of our basket of 25 cannabis stocks was down 1.5% this week as disappointing earnings reports from Canadian LPs weigh on market.
- Largest Equity Raise: On May 3rd, 2021, Hydrofarm Holdings (Nasdaq: HYFM), a leading supplier of hydroponics equipment and supplies for controlled environment agriculture, closed an upsized US$326 million underwritten public offering.
- 5.527 million shares at $59 per share.
- Shares were sold at a slight 4.3% discount from the price on the announcement date.
- The sale imputes a market cap of $2.98 billion. The EV / annualized 2021 revenue multiple was 7.4x, a significant discount to the 9.9x median multiple of the four agriculture technology companies we track with more than $200 million market cap
- Hydrofarm has excellent liquidity and low leverage, suggesting it could do debt financing if it chose to do one
- Proceeds will be used for acquisitions, working capital, and other general corporate purposes.
- 2nd Largest Equity Raise: On May 7th, Ascend Wellness completed a $92 million IPO.
- 11.50 million shares at $8 per share.
- The imputed market cap is $413 million. EV / annualized revenues based on the 4th quarter of 2020 was 8.7x, a modest discount to the median multiple of 9.7x we calculate for the 11 cultivation and retail companies we track with over $1billion in market cap.
- Proceeds will be used to fund the expansion of cultivation and processing
Public Company Listings: Four of the five public companies that raised capital this week are listed in Canada the CSE. In addition to the CSE, one of the five trades on the Nasdaq and one trades on the OTC.
Equity vs. Debt Cap Raises: Equity-based capital accounted for six of this week’s seven capital raises and 95.1% of the capital raised.
Largest Debt Raise: On May 6th, Justice Cannabis, a private MSO with licenses across eight states, including California, Illinois, Pennsylvania, Massachusetts, New Jersey, Michigan, Missouri, and Utah, closed a $22 senior secured term loan.
- The loan is secured by first liens on the company’s New Jersey real estate and other commercial security interests
- Loan terms were not disclosed.
Cap Raises by Sector: Of the seven companies which raised capital this week, four came from the Cultivation & Retail sector, and one each came from Software/Media, Hemp, and Agriculture Technology.
MERGERS & ACQUISITIONS
- Transactional Activity: Eighteen M&A transactions were completed this week, compared to two in the prior-year period. We have tracked 116 transactions YTD in 2021, compared to 28 in the same period last year. Public companies were the buyers in 84% of 2021 deals YTD compared to 89% in 2020. This week was a new record in terms of the number of YTD deals with US targets. Overall deal totals continue to lag those of 2019 because of the pullback of Canadian targeted transactions.
- This week saw the closing of the two largest cannabis-related deals ever completed with the $7.2 billion acquisition of GW Pharma by Jass Pharma and the $4.5 billion merger of Tilray and Aphria. And the ink had hardly dried on those two before the blockbuster Trulieve/Harvest deal got announced. Like, the Tilray/Aphria deal, we think Trulieve/Harvest makes excellent strategic sense. Harvest was never going to be a contender in Florida, and even with Trulieve’s aggressive moves in Pennsylvania, the market saw its pace of diversification as too slow.
- Largest M&A Transaction: The May 4th $7.2 billion acquisition of GW Pharmaceuticals (Nasdaq: GWPH) by Jazz Pharmaceuticals (Nasdaq: JAZZ) is the largest cannabis industry acquisition ever completed.
- Consideration consists of $200 in cash (total of $6.52B) and $20 in stock ($652M) for each GW share.
- The consideration represents a premium of about 50% over the pre-announcement price of GW.
- The implied enterprise value represents 12.0x annualized GW revenue.
- GW broke new ground when its drug Epidiiolx, a child epilepsy medication that contains cannabidiol (CBD), was the first cannabis-related drug to be approved for use by the FDA.
- 2nd Largest M&A Transaction: On May 3rd, 2021, Tilray (Nasdaq: TLRY) and Aphria (Nasdaq: APHA) closed their $4.5 billion merger.
- Each of Tilray’s’ outstanding 317 million shares received .8381 Tilray shares valued at $17.02 per share for total consideration of $4.5 billion.
- The consideration represents a 9.3x multiple of Aphria’s annualized revenues.
- The transaction creates the world’s largest cannabis company by revenues.
- Annual synergies of $81 million are expected to be achieved within 18 months
- Aphria shareholders will control approximately 62% of the combined company.
- Although the deal makes sense on its own by rationalizing the cost structures of the two companies, the fundamental logic is in anticipation of a legalized US. Tilray’s Manitoba Harvest and Aphria’s Sweetwater craft brewing business are meant to be launching pads into the US, but legalization may take longer than expected, while price compression in Canada is now.
- Public vs. Private: Seventeen of this week’s eighteen acquisitions were made by public companies.
- M&A by Sector: Ten of this week’s buyers came from the Cultivation & Retail sector, three from Biotech/Pharma, two from Software/Media, and one each from Hemp, Agriculture Technology, and Infused Products & Extracts.
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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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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