MJBizMag February 2021 - 56

SPAC TO SQUARE ONE
WHEN
Billingsley, the company's co-founder
and CEO, is one of several marijuana
stakeholders who believe there are advantages
for private cannabis companies
to go public by merging with blankcheck
companies, which are officially
known as special purpose acquisition
companies, or SPACs.
Two cannabis SPACs-Silver Spike
Acquisition Corp. and Subversive Capital
Acquisition Corp.-recently announced
deals worth more than $2 billion,
providing the industry with an " injection
of liquidity, " noted Mike Regan, founder
of Denver-based MJResearch Co.
About $3 billion in cannabis SPACs
have launched since 2019, according
to New York-based financial adviser
Viridian Capital.
That is a small percentage of the
record $83.4 billion raised in 2020 by
SPACs, which are publicly traded shell
companies with no operating businesses,
according to Chicago-based data firm
SPAC Research.
Part of the appeal of SPACs: Merging
with a publicly traded shell company can
provide a cheaper and faster way to go
public than conducting a traditional initial
public offering (IPO) or direct listing.
SPAC CONCERNS
However, some in the industry have
concerns that SPACs have raised too
much money too fast and there aren't
enough private companies to be acquired
by blank-check companies.
The concern is true for marijuana
SPACs as well as for the overall market.
" History has shown that it's not easy
for a SPAC to actually deploy capital
and close a transaction, " cannabis
Jessica Billingsley announced in October 2018
that she was taking Denver-based cannabis
technology company MJ Freeway public by
merging it with a so-called " blank-check " company, she was on the vanguard
of an increasingly popular way for privately held companies to begin trading on
public stock exchanges.
attorney Marc Hauser told Marijuana
Business Magazine.
Here are some factors that make SPAC
deals difficult to close, according to Hauser,
vice chair of the cannabis law team for
the San Francisco office of Reed Smith.
* SPACs need to spend at least 80%
of their cash on their first deal, so
they might not be able to find an
acquisition target that is the right size.
* SPAC shareholders must approve
the deals.
* Because SPAC shareholders are
able to redeem their shares, SPACs
might need to find alternative
financing, which isn't always easy for
marijuana businesses.
* Cannabis companies aren't ever
easy to acquire because of licensing
mandates-and being a SPAC
doesn't make that any easier.
When Billingsley was doing her due
diligence on going public using a SPAC
vehicle, she learned the process could
save MJ Freeway $1 million-$1.5 million
compared to a more traditional IPO, and
a SPAC deal could shave six months to a
year off the timeline of going public.
The merger with the SPAC, MTech
Acquisition, closed in June 2019, and the
parent of MJ Freeway changed its name
to Akerna, which trades on the Nasdaq
as KERN.
MORE CONTROL,
BUT BUYER BEWARE
A SPAC can also provide a marijuana
company with more certainty of the IPO
price and more control over the process
of going public, according to Jordan
Cohen, president and chief financial
officer of Ceres Acquisition Corp., a
56 Marijuana Business Magazine | February 2021
" Thoroughly
vet the
quality of the
individual
investors in
the SPAC. "
- Jessica Billingsley,
Akerna
Los Angeles-area cannabis blank-check
company that raised $120 million last
March and trades on the NEO exchange
in Canada.
" In a traditional IPO, you publicly
file a prospectus with a stated perceived
value and negotiate valuation with a large
number of investors during a lengthy
roadshow, " Cohen said.
With a SPAC, he said, " you can
generally negotiate with a handful of
meaningful investors. "
At the same time, cannabis firms
considering going the SPAC route need
to be aware of red flags, experts noted.
MJBizMag February 2021

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