August 25, 2021 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS
- Transactional Exercise: There have been 4 fewer capital raises and a $139.6 decrease quantity this week than within the prior week. In comparison with final yr’s similar week, two fewer transactions closed with a $57.9 million larger quantity. The typical deal dimension was $27.4 million this week vs. $8.6 million in the identical week final yr.
- Fairness raises continued at a average tempo, with the $101M IPO of NewLake Capital Companions taking heart stage. The lone debt deal was a $1.4M secured time period mortgage for Avicanna, which was uncommon for its low coupon however extraordinarily excessive efficient price.
- Hashish shares have been up down 6.3% for the week, in keeping with the Different Harvest ETF. Our graph of the week copied under reveals that each one plant-touching sectors have traded off considerably for the reason that July 14th unveiling of the Schumer/Booker proposal.
- Whole capital raised YTD in 2021 of $8.39B is now roughly $1.43B decrease than the identical interval in 2019; nonetheless, U.S. capital raises are way more strong. U.S. fairness raises are up 25%, and U.S. debt is up 51%. Canadian raises are off sharply, with fairness raises down 54% and debt down 24%.
- Largest Fairness Increase: On August twentieth, 2021, NewLake Capital Companions accomplished its preliminary public providing of three.9M shares at $26 per share for gross proceeds of roughly $102M. NewLake is a number one supplier of actual property capital to hashish firms. The triple-net lease REIT purchases properties and leases them to state-licensed U.S. hashish firms.
- As of June 30, 2021, NewLake’s portfolio is diversified throughout ten states, however roughly 93.8% of annualized rental revenues have been derived from Massachusetts, Illinois, Florida, and Pennsylvania, with the very best focus of 27.7% in Massachusetts.
- NewLake rents to the highest tier of hashish operators. All of its rental contracts as of June 30, 2021, have been with eight tenants, with the most important three, Curaleaf (29%), Cresco (19.3%), Revolution Clinics (15.7%), Columbia Care (12.2%), and Trulieve (11.8%) accounting for 88% of annualized leases.
- NewLake’s properties are 100% leased, and no leases are expiring till 2029.
- Public Firm Listings: Three of the 4 firms that raised capital this week have been public. Two commerce in Canada (one on the CSE and one on the TSX) and three within the U.S. on the OTC.
- Fairness vs. Debt Cap Raises: Fairness accounted for 3 of the 4 raises and 98.7% of capital raised.
- Largest Debt Increase: On August nineteenth, 2021, Avicanna Inc. closed a beforehand introduced $1.4M secured time period mortgage financing.
- 5% coupon with 15% OID.
- 14-month time period.
- 100% protection with warrants at 25% premiums.
- The mix of enormous OID and 100% warrant protection results in a really excessive price of capital of roughly 32%.
- Cap Raises by Sector: This week’s 4 capital raises all got here from completely different sectors: Infused Merchandise and Extracts, Cultivation & Retail, Actual Property, and Biotech/Pharma.
MERGERS & ACQUISITIONS
- Transactional Exercise: 9 M&A transactions have been accomplished this week, in comparison with two within the prior-year interval. We’ve tracked 212 transactions YTD in 2021, in comparison with 53 in the identical interval final yr. Public firms have been the consumers in 84% of 2021 offers YTD in comparison with 92% in 2020.
- There have been 147 US focused M&A transactions YTD with a document $5.5B in complete consideration.
- Largest M&A Deal of the week: On August sixteenth, 2021, Village Farms Inc.,(Nasdaq: VFF)(TSX: VFF), the sixth-largest Canadian L.P. by market cap, accomplished its acquisition of Steadiness Well being Botanicals, a top-five market share U.S. developer and vendor of CBD primarily based well being and wellness merchandise.
- The $75 million consideration for the deal was paid by way of $30 million in money and Village Farm shares valued at $45 million.
- The transaction marks the most recent funding by a Canadian L.P. in U.S. non-THC property to ascertain a beachhead for THC product gross sales publish federal legalization.
- VFF already has a major U.S. presence as a number one recent produce provider to grocery and large-format retailers.
- The corporate plans to transform its 5 million sq ft hi-tech greenhouse facility in WestTexas to hashish cultivation post-legalization.
- Most fascinating Deal of the week (not but closed): On August seventeenth, 2021, Tilray. (Nasdaq: TLRY)(TSX: TLRY), the second-largest Canadian L.P. by market cap, introduced a transaction to realize a considerable minority curiosity in U.S. hashish retailer MedMen in a sophisticated transaction paying homage to Cover’s funding in Acreage.
- Tilray and different strategic traders fashioned an SPV to accumulate roughly 75% of the excellent senior convertible notes and 65% of the Facility Warrants from Gotham Inexperienced Companions (“GGP”)
- The SPV will personal roughly $165.8 million principal quantity of the notes and about 135.3M warrants. The notes have a weighted common conversion value of $.24 per share, and the warrants have a weighted common train value of $.2357 per share.
- Tilray has a 68% curiosity within the SPV, giving it an financial curiosity in $112.7M notes and 92.0M warrants. The desk under reveals that this would offer Tilray an approximate 21% possession of MedMen. By simple arithmetic, we get that the overall SPV would personal roughly 30.9% of MedM
- In change for this contingent possession place, Tilray agreed to problem roughly 9 million Tilray shares to GGP. This issuance requires shareholder approval as a result of Tilray is operating low on approved shares. If Tilray fails to get shareholder approval by December thirty first, 2021, GGP has the correct to obtain money.
- Whole consideration for the deal is $120.7 million (9M shares at $13.41/Sh). This value imputes a market cap of $574M for MedMen.
- The prevailing senior convertible notes will probably be modified in a number of methods:
- On August 17, 2021, MedMen additionally agreed to promote $100M of models to Serruya Personal Fairness Group.
- 416.7M models at $.24 per unit for gross proceeds of $100M.
- Every unit consists of 1 share, and ¼ warrant with a $.288 train value and a five-year life.
- Brief-term warrants (1 yr) enable traders to pay $30M to accumulate $30M in convertible notes with a conversion value of $.24. Proceeds from the train of those warrants can pay down debt.
- We worth the embedded choices on this deal at a complete of $8.7 million ($5.1M for the unit warrants and $3.6M for the short-term conversion choices). We calculate a internet share value of $.219 per share, a reduction of 17.7% from the $.266 share value on the day earlier than the transaction. This low cost strikes us as cheap given the circumstances of the sale.
- The inventory market reacted positively to the announcement, however we’ve got a distinct view:
- Tilray is paying too excessive a value for its funding in MedMen. The implied enterprise worth for MedMen is roughly $813M (assuming conversion of all $165.8M notes held by the SPV. As proven within the graph under, we calculate an implied E.V. / 2022 consensus income of 4.54x. Each competitor on this listing has pretty much as good or higher development prospects as MedMen and higher profitability. We’re hard-pressed to grasp a valuation close to the highest of the group. Maybe the optionality/security of proudly owning a debt instrument moderately than straight fairness is value one thing, however not this a lot.
- The $100M infusion from Serruya is useful, however we query whether or not it is going to present sufficient liquidity to get MedMen to money movement self-sufficiency. MedMen’s money movement from operations in its March quarter was -$14.7 million, and it additionally has appreciable CAPEX necessities to finish its deliberate shops. The $100M could also be sufficient, however we’d not be shocked to see extra dilutive issuance.
- We consider this will probably be lifeless cash for fairly some time. We don’t assume we’re on the cusp of federal legalization, and subsequently it will symbolize a non-cash-earning asset on Tilray’s books (albeit a comparatively small one) for a minimum of a number of years.
- Regardless of the progress MedMen’s administration has made in turning across the enterprise, the corporate has misplaced its market management place and now could be simply one other mid-sized MSO. The corporate does have some glorious areas, together with its soon-to-open Fenway dispensary, however it isn’t the market chief it as soon as was perceived to be.
- The acquisition won’t get Tilray very far in its pursuit of $1.5B of U.S. revenues. Consensus estimates have MedMen at lower than $200M for 2022. Moreover, we mistrust the technique of quadrupling revenues by way of acquisitions. We perceive Tilray’s want to enter the U.S. market; its 8% consensus 2022 EBITDA margin tells you every part. Irwin clearly understands that they can’t assist their present market cap with out huge income and revenue will increase, and MedMen could properly have been the one play obtainable. It simply does not make a sufficiently big distinction to matter.
- It’s fascinating to think about Gotham Inexperienced’s motivation for this transaction. We’re reminded of the outdated saying that if you’re sitting at a poker desk and after trying round, you may’t determine who the chump is, then it is you. And albeit, we don’t see GGP because the chump right here.
- GGP undoubtedly stubbed its toe on MedMen, however its technique has been fairly clear for a while: preserve optionality by sustaining a secured debt place whereas regularly negotiating larger conversion positions within the firm. The place mandatory, it has been keen to offer additional liquidity to maintain that optionality alive.
- What was the endgame? We consider GGP was holding on, hoping that federal legalization would occur and a wealthy dumb investor would pay up for the possibility to take over MedMen. Some cracks of their certainty started to be obvious with the sale of the New York property within the face of an imminent grownup market conversion.
- However alongside comes Tilray, keen to pay a excessive a number of, years forward of legalization. We think about a giant grin on Jason Adler’s face, and we do not assume he would thoughts taking the money as an alternative of the 9M Tilray shares.
- Public vs. Personal: Seven of this week’s 9 acquisitions have been made by public firms.
- M&A by Sector: The consumers and sellers on this week’s offers have been from the next sectors:
The Viridian Hashish Deal Tracker is a proprietary info service that displays capital increase and M&Amp;Amp;A exercise within the authorized hashish and hemp business. Every week the Tracker aggregates and analyzed all closed offers and segments every in keeping with key metrics:
- Business Sector (Considered one of 12 sectors, from Cultivation to Manufacturers)
- Greenback worth of the transaction
- Area during which the deal occurred (Nation or U.S. State)
- Standing of the corporate asserting the transaction (Public vs. Personal)
- Deal construction (Fairness vs. Debt)
- Key deal phrases (Pricing and Valuation)
The Viridian Cannabis Deal Tracker gives the market intelligence that hashish firms, traders, and acquirers make the most of to make knowledgeable choices concerning capital allocation and M&Amp;Amp;Amp;A method.
Since its inception in 2015, the Viridian Hashish Deal Tracker has tracked and analyzed greater than 2,500 capital raises and 1,000 M&Amp;Amp;Amp;A transactions totaling over $45 billion in mixture worth.
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