October 27, 2021 (Investorideas.com Newswire) KEY INSIGHTS & TAKEAWAYS
Transactional Exercise: There have been 5 fewer transactions and a $254.3 million decrease quantity this week than within the prior week. In comparison with final yr’s identical week, seven extra transactions closed with a $192.8 million greater quantity. The common deal measurement was $21.6 million this week vs. $0.7 million in the identical week final yr. General deal exercise was skinny, with each fairness and debt issuance dominated by a single concern.
Six fairness points had been closed for whole proceeds of $66 million. Roughly $50 million of the full was funds raised by AYR Methods via warrant workout routines.
Three debt points closed this week for a complete proceed of $128.3 million, led by the $120 million Verano Holdings credit score facility upsizing.
Hashish shares drifted barely decrease by 0.7% for the week as measured by the AdvisorShares Pure US Hashish ETF. The ETF is down 45.0% from its February twelfth peak and is now at its lowest since October 30, 2020. 12 months-to-date, hashish shares are down 22.1%, whereas the S&P 500 is up 21.0%.
For the second week, tier-one MSOs had been hit the toughest, led Ascend Wellness (CSE: AAWH)(OTCQX: AAWH) (down 9.8%) and TerrAscend (CSE: TER) (down 7.3%).
Massive gainers and losers for the week included:
Complete capital raised YTD in 2021 of $10.64B is now roughly $.34B decrease than the identical interval in 2019 (the earlier peak yr); nevertheless, US capital raises are way more sturdy. US fairness raises are up by $828M (21%), and US debt raises are up by $1,212M (114%) in comparison with 2019. Canadian raises are off sharply, with fairness raises down 48% and debt down 17%.
Largest Fairness Increase: On October 20, 2021, Ayr Wellness, Inc. (CSE: AYR.A)(OTCQX: ARYWF), the sixth-largest MSO by market cap, introduced the ultimate outcomes of its September accelerated warrant expiry and incentive program.
- 5.85 million warrants (91%) of the publicly held warrants exercised had been exercised for money and obtained the good thing about a C$.75 per share incentive. The inducement equates to a 6.5% low cost on the train value. The corporate is cleansing up its cap desk and eradicating a possible overhead of in-the-money warrants.
- Ayr obtained roughly US$49.5 million in money from the train value funds.
- The warrants had been issued in December 2017 and had an authentic expiry date in Might 2024. They turned topic to the acceleration clause within the settlement in November 2020.
- The market was involved concerning the potential influence of shares obtained via warrant exercised being dumped and pressuring costs. Ayr shares have carried out a bit worse than the market during the last a number of weeks, and this most likely does have one thing to do with it.
- Viridian Capital Fairness analysis believes Ayr is the very best choose among the many MSOs and our Viridian Capital Graph of the Week from final week copied beneath demonstrates the argument effectively. Ayr has the bottom valuation multiples of the group, however the highest 2021-2023 anticipated income progress.
- Ayr administration believes its inventory is undervalued. On August 25, 2021, the corporate’s board authorised a plan to repurchase as much as 5% of excellent subordinated shares (the utmost quantity allowed for CSE-listed corporations). Ayr is the primary main MSO to announce a buyback program. We imagine different corporations with low multiples ought to contemplate the same transfer as fairness costs proceed to edge down and debt pricing turns into extra enticing.
Public Firm Listings: Seven of the 9 corporations that raised capital this week had been public. All seven commerce in Canada ( 5 on CSE and two on TSX). Equally, all seven commerce within the US ( six on OTC, and one on Nasdaq).
Fairness vs. Debt Cap Raises: Fairness accounted for six of the 9 raises and 34.0% of capital raised.
Largest and Most Fascinating Debt Deal: On October 20, 2021, Verano Holdings Corp. (CSE: VRNO)(OTCQX: VRNOF) introduced that it had amended and upsized its senior secured time period mortgage to $250 million, including an incremental $120 Million. Particulars of the power:
- 8.5% rate of interest with no equity-linked options.
- 18-month maturity.
- Senior Secured.
- Lead administrative and collateral agent: Chicago Atlantic Advisors, Vital participant; AFC Gamma, Inc.
- Verano has an possibility for an extra $100 million in time period debt on the identical phrases.
The Verano Deal is illustrative of the declining efficient price of debt for the biggest MSOs, which has continued on the downward trajectory we identified in our September 6, 2021, Viridian Capital Graph of the Week, up to date beneath.
The lowered price of debt stands in stark distinction to the reception the group has seen within the fairness market, the place costs (as indicated by the AdvisorShares Pure US Hashish ETF) have declined by 45% from their February peaks.
The decline in debt prices outcomes from enhancements in issuers’ credit score high quality and the elevated presence of well-funded institutional lenders just like the individuals within the Verano deal famous above.
This week’s Viridian Capital Graph of the week (introduced beneath) confirmed proof that the market is rationally pricing the credit score high quality of the MSOs. The graph reveals the efficient charges of current transactions in opposition to the issuer credit score rating within the Viridian Capital Credit score Tracker. (Be aware this graph solely accommodates information on the businesses which have not too long ago accomplished significant-sized debt points.)
Under is a extra complete take a look at the credit score high quality of Verano relative to different public MSOs with over a $750 market cap.
- Verano ranks because the third-best credit score of the group primarily based on the Viridian Credit score Tracker, in step with the pricing of its upsized credit score facility.
- Verano has the second-lowest debt to market cap and the group’s highest analyst consensus 2022 EBITDA margin.
We count on to see continued debt issuance from the MSOs as they fund build-outs of newly acquired licenses and pursue accretive acquisitions.
Cap Raises by Sector: 5 of this week’s 9 capital raises come from Cultivation & Retail.
MERGERS & ACQUISITIONS
Transactional Exercise: We tracked solely two closed M&A transactions this week, in comparison with three within the prior-year interval. We’ve got chronicled 265 transactions YTD in 2021, in comparison with 71 in the identical interval final yr. Public corporations had been the consumers in 85% of 2021 offers YTD in comparison with 89% in 2020.
There have been 186 US focused M&A transactions YTD with a document $8.3 Billion in whole consideration. Each transaction numbers and whole consideration exceed the values recorded in every of the final two full years.
One of many key drivers of the M&A wave has been elevated deal sizes, as proven beneath. Be aware: $ consideration for non-cultivation targets YTD is roughly 2x all earlier full-year quantities.
Largest M&A Deal of the week: On October 18, 2021, Progressive Industrial Properties (NYSE: IIPR), the primary and solely NYSE listed firm centered on the US hashish trade, closed on the acquisition of a 201,000 sq ft facility in Desert Sizzling Springs, CA and entered right into a long run lease with Gold Flora, LLC.
- The acquisition value for the property was $51 million, with a tenant enchancment allowance for an extra $9 million.
- The property will probably be used as a cultivation and processing facility.
- Gold Flora is a completely vertically built-in hashish operator with cultivation, manufacturing, distribution, and retail.
One other Fascinating M&A transaction: On October 19, 2021, Excessive Tide (TSXV: HITI)(Nasdaq: HITI), a US$286M market cap retail-focused Canadian firm that additionally manufactures and sells consumption equipment, closed its beforehand introduced acquisition of Blessed CBD.
- Blessed is a number one on-line retailer of hemp-derived CBD merchandise within the UK.
- Complete consideration included upfront money funds of US$5.8M and an extra US$6.78M in inventory.
- The transaction worth represented roughly 2.2x and 4.0x revenues and EBITDA, respectively, for the trailing 12 months ended August 2021.
Public vs. Non-public: Each of this week’s two acquisitions had been made by public corporations.
M&A by Sector: The consumers and sellers on this week’s offers had been from the next sectors:
The Viridian Hashish Deal Tracker is a proprietary data service that screens capital increase and M&Amp;Amp;A exercise within the authorized hashish and hemp trade. Every week the Tracker aggregates and analyzed all closed offers and segments every in accordance with key metrics:
- Trade Sector (One in every of 12 sectors, from Cultivation to Manufacturers)
- Greenback worth of the transaction
- Area through which the deal occurred (Nation or U.S. State)
- Standing of the corporate saying the transaction (Public vs. Non-public)
- Deal construction (Fairness vs. Debt)
- Key deal phrases (Pricing and Valuation)
The Viridian Cannabis Deal Tracker supplies the market intelligence that hashish corporations, buyers, and acquirers make the most of to make knowledgeable choices concerning capital allocation and M&Amp;Amp;Amp;A technique.
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 combination worth.
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About Viridian Capital Advisors, LLC
Viridian Capital Advisors (www.viridianca.com) is a monetary and strategic advisory agency devoted to the hashish market. We’re a data- and market intelligence-driven agency that gives funding, M&Amp;Amp;A, company improvement, and investor relations companies to rising progress corporations and certified buyers within the hashish sector. Our banking follow, via broker-dealer Bradley Woods & Co. Ltd. (Member FINRA/SIPC), supplies capital and M&Amp;Amp;A companies to fund the expansion of our shoppers, whereas our advisory follow helps to place and construct their companies. Our crew’s a long time of excessive stage working and transactional expertise on Wall Road in a wide range of rising sectors, permits Viridian to supply complete strategic and monetary options that help hashish enterprises in realizing their full potential.
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