Late Friday afternoon, we had two new IPO filings to replenish our previously dwindling supply of new issues. The first, Stable Road Acquisition Corp. (SRACU), is a $150 million cannabis-focused SPAC, being led by Brian Kabot, as Chairman and CEO. Although technically, their focus will be on cannabis-adjacent companies so as not to “touch the leaf” in violation of any U.S. federal laws regarding controlled substances. It’s a “contact high”, if you will. (Side note: I found an article on Forbes (linked) that better describes businesses that “do not touch the leaf”, but amazingly enough, the author’s last name is “Weed”.)
Looking a little closer at this team’s background, Brian Kabot, is currently the Chief Investment Officer of Stable Road Capital, the sponsor of this SPAC as well as a single-family office investment vehicle. Additionally, James Norris, who is the CFO of Stable Road (the SPAC), is also currently the CFO of Stable Road Capital. Although, Mr. Kabot, in particular, brings the cannabis experience by being a Strategic Advisor to The Cannabis ETF (NYSE: THCX) in addition to serving on the board of directors of Old Pal, LLC, a private cannabis brand company, and on the board of Grenco Science LLC, a private developer of vape pens and portable vaporizers, since July 2019.
However, focusing on this SPAC’s structure, we see 1 share, 1/2 warrant, 100% in trust and 18 months duration. This is a first-time team, so they are not going after aggressive terms, but are these terms still appropriate? Consider that the cannabis sector has not performed well as of late and sentiment has remained bearish. Plus, there have been a number of calls to ban cannabis vaping products and sales in both Massachusetts and Los Angeles. California being the largest cannabis market in the U.S. Additionally, even though the SAFE Banking Act, which affords protection to financial institutions that would like to work with state-licensed cannabis businesses, passed in the House of Representatives, enthusiasm for the bill has since waned. It’s looking increasingly unlikely that the bill will pass in the Senate. So all of this is to say that Cannabis is an out-of-favor sector right now. As a result, a little sweetener in the form of maybe a 3/4 warrant might be in order to get investors excited about this IPO.
Furthermore, while cannabis SPACs were hot in the first half of the year, Silver Spike (SSPKU) (also cannabis-focused) debuted during tough “cannabis-market” conditions back in August, and subsequently broke $10.00 on its first day of trading. So it will be interesting to see what the appetite is for additional cannabis SPACs going forward. Look for Stable Road to price mid-October.
Summary of terms below:
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