MJBizMag February 2021 - 59

years ago, she said it would provide the marijuana
tracking company with:
* Access to public capital markets.
* Additional balance-sheet strength.
* A combined company that would be debt-free
and have a balance sheet with more than
$60 million in cash to take advantage of
strategic growth opportunities.
" We were the first seed-to-sale cannabis tech
company in the industry, and MTech was the first
SPAC listed for the purpose of acquiring cannabis
tech companies. It was a good fit, " said Billingsley,
who is Akerna's CEO.
Although SPACs have been doing deals since
the early 2000s, the investment vehicle has gained
a higher profile since 2019, as well-known players
such as billionaire William Ackman, former speaker
of the U.S. House of Representatives Paul Ryan and
former Trump economic adviser Gary Cohn have
made big splashes in financial circles by bankrolling
and launching SPACs.
Mainstream companies that have gone public by
merging with SPACs include:
* DraftKings, a sports betting site.
* Virgin Galactic, the British spaceflight
operation headed by billionaire
Richard Branson.
* Liberty Media, which has holdings in the radio,
sports and live events industries.
Even Playboy plans to go public with a SPAC
merger valued at $415 million. And basketball
legend Shaquille O'Neal closed on a $300 million
SPAC deal in late November.
Some cannabis experts have gone as far as to
say that SPACs are the " only game in town " for
marijuana companies that want to go public.
MJ Freeway considered more typical methods
of going public, such as a direct listing or raising
money through a traditional IPO, before settling on
the SPAC structure, Billingsley noted.
She said one important tip for cannabis companies
researching a potential merger is to make sure SPAC
investors are planning to be long-term partners.
She noted some SPAC investors " always
redeem " -that is, they cash out of the newly listed
cannabis company for a quick profit.
But in Billingsley's view, it is better to merge with
a SPAC that has " good fundamental investors " that
plan to stick around after the cannabis company is
trading on a stock exchange.
" Thoroughly vet the quality of the individual
investors in the SPAC, " she advised.
SPACs Still Face
Securities Scrutiny
The U.S. Securities and Exchange Commission (SEC) announced
this fall that companies formed by mergers with special
purpose acquisition companies (SPACs) cannot use short-form
registrations. But even if SPACs face more scrutiny from the SEC,
it likely will have little impact on cannabis firms that want to use
these shell companies to go public.
" Even if there were increased SEC scrutiny of SPACs, we wouldn't
expect that to have much effect on which exchange a cannabis
SPAC chooses to list or which exchange will continue to list the
company post-acquisition, " said Marc Hauser, a marijuana lawyer
with San Francisco-based Reed Smith.
Plant-touching companies, for example, aren't allowed to list on
the New York Stock Exchange or the Nasdaq because marijuana is
illegal at the federal level, Hauser said. Instead, those companies
would likely trade on a Canadian exchange.
SEC CHAIR SAYS SPACS NEED TRANSPARENCY
SPACs have been growing so quickly in popularity that then-SEC
Chair Jay Clayton told CNBC in September that he is looking at the
investment vehicles very closely.
He indicated that SPAC sponsors might need to be more
transparent about disclosing things such as compensation and how
much equity they are taking in the merged company.
" One of the areas in the SPAC space I'm particularly focused
on-and my colleagues are particularly focused on-is the
incentives and compensation to the SPAC sponsors, " Clayton
said in the CNBC interview.
" How much of the equity do they have now? How much of the
equity do they have at the time of the IPO-like transaction? What
are their incentives? "
Clayton resigned in late December. U.S. President Joseph Biden
tapped Wall Street veteran Gary Gensler to head the SEC going
forward. Gensler is expected to pursue " heightened scrutiny " of
SPAC regulations, news outlets speculated in late January.
Attorney Ari Edelman, also with Reed Smith, said concerns about
the SEC scrutinizing SPACs have been overblown. The idea that
SPACs are not already being thoroughly reviewed by the SEC is a
misconception, he said.
However, before a SPAC closes its IPO, it must file statements with
the SEC detailing " a full-blown description " of the target business,
including risk factors and audited financial statements, he said.
At the same time, Edelman cautioned, " If there is a SPAC that is
toward the end of its life that wants to buy a cannabis company,
the SEC will dig down and make sure there is adequate disclosure
regarding due diligence, process, valuation, fairness " and
potentially other factors.
Jordan Cohen, president of Los Angeles cannabis SPAC Ceres
Acquisition Corp., which in June raised $120 million, is taking a
wait-and-see attitude.
" We will continue to monitor all SEC and other appropriate
regulatory bodies as they make decisions and potential changes to
any disclosure requirements in the future, " Cohen said.
- John Rebchook
February 2021 | mjbizdaily.com 59
http://www.mjbizdaily.com
MJBizMag February 2021

Table of Contents for the Digital Edition of MJBizMag February 2021
