Part of cannabis and investing
Already a leading adviser to cannabis companies, Canaccord Genuity Corp. is now a potential buyer of a marijuana business after the investment bank launched a takeover vehicle that is searching for an acquisition worth up to $250-million.
Canaccord filed the paperwork on Wednesday for an initial public offering from a cannabis-focused special-purpose acquisition corporation, or SPAC. In a news release, the investment bank said the cannabis SPAC will attempt to acquire a privately owned business with an enterprise value – that’s equity plus debt – of between $50-million and $250-million.
The investment bank’s plan is to stage a friendly takeover of a U.S. or European cannabis company that wants to go public, according to executives working on the offering. Valuations in these regions are significantly less than comparable Canadian companies. Investment bankers involved in the SPAC said domestic cannabis producers can raise money from a variety of sources, including stock offerings, royalty financing and bank loans, while many foreign cannabis businesses face capital constraints as a result of regulatory issues.
Canaccord can look to an international network of industry contacts as it scouts for takeovers, as the Toronto-based firm bills itself as the “dominant investment bank for the cannabis sector by number and value of transactions," with roles in more than 50 cannabis-related transactions last year. While the new SPAC intends to buy a private company involved in cannabis production, distribution or related sectors, Canaccord said in a news release it could change strategies if market conditions shift and “we are not limited to a particular industry or geographic region.”
Canaccord plans to raise up to $40-million for the SPAC by selling units for $3 each. The units will consist of one share and one warrant, which entitles the holder to buy an additional share for $3.45 for a five-year period that begins after the SPAC successfully acquires a company. As part of the governance common to all SPACs, investors will have an opportunity to vote on any potential acquisition.
Canaccord is pitching the IPO to institutional and retail investors, and a wholly owned Canaccord subsidiary will buy 4 per cent of the cannabis SPAC for $3 a unit, the same price outside investors are paying. Canaccord managing director Michael Shuh will be chairman and chief executive of the SPAC.
SPACs are relatively common in U.S. capital markets, where companies raised US$51-billion from 310 IPOs over the past 15 years, according to data compiled by research firm SPAC Analytics. The vast majority of Canadian SPACs have been poor performers since the first offering was done in 2015. There have been eight Canadian SPAC IPOs that raised a total of $1.5-billion. The majority of the offerings either failed to acquire a company, and paid back their investors, or made an acquisition and now trade below their IPO price.
Canaccord backed one of the few successful IPOs in the sector. The investment bank launched its first SPAC last August at $3 a unit and that company announced plans in June to acquire privately owned, Oakville, Ont.-based Spark Power Corp. Units in the first Canaccord SPAC now trade at $3.15 and its investors are expected to approve the Spark Power takeover at a vote scheduled for the end of August.
The new cannabis SPAC plans to list on the NEO stock exchange, owned by Aequitas NEO Exchange Inc. Cormark Securities Inc. is also working on the offering, along with law firms Blake Cassels & Graydon LLP and Stikeman Elliott LLP.