Friends, I was recently quoted by Marijuana Business Daily (link) about cannabis SPACs (special purpose acquisition vehicles), which I’ve talked about before in these Cannabis Musings (link; link). (I’d be a poor marketer if I didn’t mention that Reed Smith just brought on as a partner Ari Edelman (press release), who has broad and deep experience in SPAC formation and acquisitions, including cannabis SPACs)
2020’s spate of SPACs continues apace, in my opinion, due to a shift in investor focus after the earlier (2017-19) capital wave, as well as the wave of SPACs being raised in the broader, non-cannabis markets (link), which can only help the marketing of cannabis SPACs to investors that have traditionally shied away from the sector. Interestingly, although the rise of the cannabis SPAC came before the broader market trend, both similarly take advantage of disruptions in the IPO markets – in cannabis, SPACs primarily came into their own in 2019 as public offerings on the Canadian Securities Exchange had fallen out of favor with investors (and pretty much dried up), while non-cannabis SPACs are quickly filling an niche as IPOs have been harder to pull off during the pandemic. Investors see the SPAC as an alternative way to play the acquisition market (as well as the arbitrage afforded by the SPAC’s warrant coverage), while offering a public company exit at a time when there are few alternatives (including M&A).
To me, the really interesting question is timing. As we talked about earlier with an esteemed panel of industry insiders, the upcoming election could have profound implications for the future and structure of the US cannabis industry. Or, nothing could change. If, however, the results signal a stronger path to federal legalization, will we start to see even more SPAC formation, as well as acquisitions by extant SPACs, in anticipation. Will we maybe see the Nasdaq open up to listing a broader range of post-acquisition deals, again, in anticipation. Will we see more debt and equity investors, who’ve stayed away from the sector in the past, start to backstop (replacing capital that’s been redeemed by shareholders) SPAC acquisitions?
Your guess is as good as mine.