Read The Viridian Cannabis Deal Tracker Report For The First Half Of 2020



The Viridian Cannabis Deal Tracker is an information service that monitors capital raise and M&A activity in the legal cannabis industry. Each week the Tracker analyzes/aggregates all closed deals and allocates each transaction to one of twelve key industry sectors in which the deal occurred (from Cultivation to Brands), the region in which the deal occurred (country or U.S. state), the status of the company announcing the transaction (public vs. private) and the type of deal structure (equity vs. debt).

The Viridian Cannabis Deal Tracker provides the deal data/terms/valuations/structures and market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital and M&A strategy. Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $45 billion in aggregate value. Find it exclusively on Benzinga Cannabis every week!

Below is a summary of the first half of 2020.

After a brutal 2019 during which global cannabis stocks lost approximately 70% of their value, the beginning of 2020 was relatively benign, but as the impact of COVID-19 became clear, global cannabis stocks traded off another 62%, finally bottoming out around March 18. 

The stock decline further exacerbated the cannabis capital crunch, bringing capital raises for earlier stage companies and most M&A activity to a virtual halt. 

Stock prices and market conditions have improved significantly since the bottom, but cannabis stock prices are still about 25% down since the beginning of the year. The partial recovery has brought back a bit of vigor to the capital raise and M&A activity in the industry. 

Cannabis was classified as an “essential” business by most states, allowing continued albeit altered operations. Cannabis sales volume has held up remarkably well and recent data suggests an acceleration of the growth trajectory despite general economic weakness. 

Canadian LPs and several large U.S. MSOs continue to retrench, restructure and divest non-core operations.  U.S. companies have generally fared better, and several large MSOs are now positive EBITDA and successfully consolidating their market positions.

Some of the largest cannabis M&A deals ever closed during 1H’2020, including Curaleaf/Select and Cresco/Origin House and another major transaction, Curaleaf/Grassroots closed in July 2020.

The unbridled and undisciplined pace of M&A activity from 2016 to 2019 is over.  Tighter capital and lower public company valuations are mandating M&A strategies that are much more accretive financially and strategically.

Cannabis SPAC IPO’s raised more than $2.6 billion in the last year, and more than $700 million in 1H’2020,  as institutional investors recognized the opportunity to acquire distressed/discounted assets in the industry.

The U.S. cannabis marketplace has become the dominant focus of both investors and acquirers.

1st Half 2020: Capital Raise Summary

Capital raise transactions decline

We tracked 166 capital raises in the first half of 2020 that raised a total of $2.6 billion, a decline of 67.5% versus the first half of 2019, and a decline of 32.2% versus the second half of 2019.

Sales-leasebacks and SPACs tilt capital allocation ratios

Of the 12 industry sectors we actively track, Cultivation & Retail continues to lead with 55% of all invested capital, although down from 66% in the first half of 2019. The two other leading capital raising sectors were Real Estate (18% of invested capital, up from 4% in the previous year) and Investments/M&A (13% of invested capital, up from 7% in the previous year).  These two sectors highlight the growing role of sales-leaseback financing and SPACs.

Public capital raises have become more dominant

Public companies represented 89.2% of the money raised and 80.7% of the number of transactions, significantly higher than the 70.3% of capital raised and 67.8% of the number of transactions registered for the first half of 2019.  As in any distressed/uncertain environment, investors chase liquidity that public companies can provide.

Equity raises represented a similar percentage of total capital raises compared to the first half of 2019 

Equity deals represented 70.5% of the number of capital raises and 67.5% of total capital raised versus 70.2% of the number of capital raises and 68.7% of total capital raised in the first half of 2019. Debt financing and debt providers have become much more active in the industry providing an additional source of financing.

Convertible debt shrinks as straight debt becomes a larger part of the landscape in the U.S.

Canadian companies utilized straight debt in 61% of their debt capital raises in the first half of 2020 versus 36.3% for U.S. companies.  Historically straight debt has been confined to ancillary, non-plant touching sectors of the U.S. market, but this is beginning to change.  Late 2019 and 2020 to date have seen several large straight coupon debt issuances by U.S. MSOs and we expect this trend to continue as more of them become free cash flow positive.

Capital Raises Recovering with Stock Prices

Cannabis capital raise activity, particularly equity raises, are quite sensitive to cannabis stock price levels.  

Between the end of the second quarter of 2019 and the beginning of 2020, cannabis stocks declined 43%, adding to the damage from earlier in the year decreases.

The market traded off an additional 45% between the beginning of 2020 and its bottom on March 16, as the full impact of COVID-19 became apparent. The total market decline from the end of the Q2’2029 through the market bottom was approximately 69%.

Market disruption from COVID-19 brought fundraising in the cannabis market to a virtual standstill in May before it began to bounce back in response to a strong recovery of stock prices which have increased 92% from the bottom

2nd Half Outlook for Capital Raises

We Foresee Renewed Growth In Capital Raise Activity Based on Current Market Dynamics

Valuation levels have stabilized after a significant bounce off the bottoms.

Reduced overall valuation levels will drive increased investor interest.

Companies will continue to require growth capital as the industry shows increasing growth rates.

Consolidation/roll-up initiatives underway across the industry will require both acquisition and operating capital.

COVID-19 induced budgetary shortfalls will give more states an incentive to pass Medical and Adult-Use legislation in the November 2020 elections.

Potential for landmark changes in federal regulation of cannabis if Democrats win control of the White House and Senate in addition to retaining the House.

1st Half 2020: M&A Summary

M&A activity continued to fall from an already low level in the second half of 2019

We tracked 39 M&A transactions in the first half of 2020, down 81% from the 205 recorded in the first half of 2019. The drop in M&A activity directly relates to the dramatic decline in cannabis stock prices as most industry transactions are predominantly stock-based.

Sector Rotation

Cultivation & Retail, consistently the largest M&A sector,  recorded 25 M&A transactions in the first half of 2020, down 79% from the 117 recorded in the first half of 2019 and 61% from the 64 recorded transactions in the second half of 2019.  Significant declines in activity also occurred in Hemp, and Infused Products and Extracts.  The Biotech/Pharma sector saw the largest increase in M&A activity.  

Going-public deals recoil from their peak in the second half of 2019

We recorded 5 going-public transactions in the first half of 2020, raising a total of $504 million.  This number of transactions was 62% lower than the 13 recorded in the second half of 2019 and the capital raised was 63% lower than the $1.35 billion raised in the second half of 2019.  The change was largely due to the virtual cessation of RTO transactions (1 versus 6) and a lower amount of SPAC capital raised.  The second quarter of 2019 figure was heavily influenced by two large SPAC IPOs (Bespoke and Subversive) that together raised $925 million.

Corporate M&A strategy evolves

The unbridled and undisciplined pace of M&A activity from 2016 to 2019 is over.  Tighter capital and lower public company valuations are mandating M&A strategies that are much more accretive financially and strategically.

2nd Half Outlook for Mergers & Acquisitions

We Foresee a Pick-Up in M&A Activity Based on Current Market Dynamics

SPACs should begin to announce/close deals. 

Reduced valuation levels for private companies will drive buyer demand.

Companies that can’t raise growth capital will pursue M&A exits.

Distressed companies will be sold as ongoing operations or in pieces.

The U.S. cannabis marketplace will remain the dominant focus of both investors and acquirers.

Capital Raise Activity 

1st Half 2020 Capital Raise Key Figures

Total Capital Raised: $2.55 Billion

YoY Growth: -65.75%

# of Raises: 166

YoY Growth: -50.89%

Largest Raise: $300 Million

Most Active Cannabis Sector: Cultivation & Retail

Most Active Region: U.S.

Q2 2020 Capital Raise Key Figures

Total Capital Raised: $908.8 Million

YoY Growth: -73.01%

# of Raises: 87

YoY Growth: -54.92%

Largest Raise: $174 Million

Most Active Cannabis Sector: Cultivation & Retail

Most Active Region: U.S.

COVID-19 Impact on Cannabis Capital Markets

We compared data from the Viridian Cannabis Deal Tracker for June 2020 (4th full month of COVID-19) vs. the prior months of Q2’2020, the prior quarter (Q1’2020) and prior yearly period (Q2’2019).

Financing Activity Still Weak But Improving

Total capital raises were down in June 2020 versus May 2020 but still 86.8% higher than in March 2020, the weakest month we have recorded.

Equity issuance is up strongly since March, due in part to the recovery in stock prices.

Debt issuance has remained weak since the onset of COVID-19 as more conservative debt investors ponder the sustainability of the industry’s robust performance in the face of severe economic disruption.

Public vs. Private Company Capital Raises

Public companies represented 85.0% of all capital raises in the second quarter of 2020, down from 91.5% for Q1’2020 but up from the 61.7% for Q2’2019. The turbulence in global markets in general, and the cannabis markets in particular, will continue to drive investors to seek liquidity.  The capital crunch in the cannabis industry is acutely impacting private companies.

Capital Raise Activity: Public versus Private

Viridian Capital tracked 166 capital raises in the first half of 2020 that raised a total of $2.6 billion.

Public companies represented 89.2% of the money raised and 80.7% of the number of transactions. These are significantly higher than the 70.3% of capital raised and 67.8% of the number of transactions registered for the first half of 2019.

Total capital raised in the first half of 2020 declined 67.5% versus the first half of 2019 and 32.2% versus the second half of 2019. Public company capital raises faired slightly better, with capital raised in the first half of 2020 decreasing  58.9% from the first half of 2019, but only 7.1% versus the second half of 2019.

The stock price …

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