Canaccord launches second cannabis SPAC, for private co. takeover

HIGHLIGHTS

1. The special purpose acquisition company will target private companies valued between $100-million and $1-billion
2. Follows first Canaccord cannabis SPAC, which is acquiring U.S. multi-state operator Columbia Care
3. The SPAC will focus on growth-stage companies with challenges accessing capital

Canaccord Genuity Corp. has launched a second cannabis-focused special purpose acquisition company (SPAC). The takeover vehicle, Canaccord Genuity Growth II Corp. (CGGC II), will raise money, then go out in search of a private cannabis company to take public on a Canadian exchange. The SPAC plans to target companies with an enterprise value of between $100-million and $1-billion, although “this may change based on the size of the Offering,” the company said.

“While we have not yet identified any specific target business with which to pursue our qualifying transaction, we believe, based on our management’s business knowledge and past experience, that there are numerous acquisition targets,” the company said in a preliminary long-from prospectus filed on Thursday.

Canaccord has not said how much the SPAC intends to raise. It is offering Class A Restricted Voting Units for $3. A unit is made up of one CGGC II common share, and one share purchase warrant, which can be exercised for $3.65.

Canaccord launched a similar SPAC in 2017, raising $30-million in a private round, and another $46-million when it went public on the Aequitas NEO Exchange last fall. In November, the first Canaccord Genuity Growth Corp. entered into an agreement to acquire Columbia Care LLC, a multi-state operator (MSO), which owns dispensary and cultivation assets across the U.S. That deal is expected to close in April.

The takeover target for the new SPAC will “not limited to a particular industry or geographic region,” the company said, although “we intend to focus our search for target businesses that are involved in cannabis production and/or distribution and/or related sectors.”

It seems likely that, as with Columbia Care, the target will be a U.S. firm. American marijuana companies are growing rapidly, as more and more states legalize medical or recreational cannabis. However, because cannabis remains illegal at a federal level, U.S. cannabis companies cannot list on American stock exchanges, and have a hard time accessing capital.

“As most of the cannabis industry, especially in the United States, is a cash-based business, many participants and operators have difficulty managing the cash basis of their business. It is not uncommon for operators to not allocate cash properly and as a result fall short in meeting the needs of the business. This presents a unique acquisition opportunity for acquirors that have ready access to capital,” CGGC II wrote in the prospectus.

Canaccord, the most active investment bank in the cannabis space, has been instrumental bringing a handful of MSO’s public in Canada – including Harvest Health & Recreation, Acreage Holdings and Curaleaf Holdings Inc. – through the reverse takeover of shell companies listed on the Canadian Securities Exchange.

The firm’s new SPAC will focus on growth companies: “We believe this segment is under-developed, under-funded and under-covered by private equity or public capital markets and, as such, offers a unique balance of (a) the absolute number of potential business targets, and (b) the large percentage of targets with high quality management teams and scalable operations that are necessary to be a successful public company in both the short and long term,” CGGC II said.

“In addition, we believe that growth companies have limited options for raising growth capital, which will provide us with leverage when negotiating with prospective acquisition targets.”