Special purpose acquisition companies — or SPACs — have been around for decades, but they’re surging in popularity at a time when cash can be hard to come, particularly in the cannabis industry. And when cash-hungry companies cross paths with SPAC management teams with capital to offload, it can be a powerful driver of mergers and acquisitions.
“The great thing about SPACs is you can sort of do M&A alongside this transaction and within it. You could be merging something in there that is a really interesting value-added piece … or it could be a single asset, that the story really is more about them now being public,” said Joe Crouthers, CEO of Ceres Group, the cannabis investment group, that organized the SPAC Ceres Acquisition Corp.
Financing can be hard to come by in an industry as new and complicated (and in the U.S., illegal) as cannabis. It has been especially difficult to secure capital within the past year, during which companies in the nascent industry have faced a series of challenges, not least of which has been the coronavirus pandemic. According to Viridian Capital Advisors, capital raises have slowed considerably. In the first half of 2020, cannabis companies raised $2.55 billion, which is down about 66 percent compared with the amount raised during the same period in 2019. The number of transactions has also fallen by about 51 percent to 166, with public companies accounting for 89 percent of capital and 81 percent of total transactions, according to a report from Viridian, tracking deals in the first half of 2020. U.S. cannabis companies have historically turned to the public markets in Canada for an answer to their cash problems. And SPACs are becoming a more popular cross-border mechanism for accessing the public markets, as well as for raising and