This morning, Merida Merger Corp. I (MCMJU). filed for a $100 million cannabis-focused SPAC, bringing the count to six for the number of SPACs we have on file to IPO. Merida I (the SPAC), will be sponsored by Merida Capital Partners III LP, which is the recently launched third fund from Merida Capital Partners. Merida Merger Corp. I, will be led by Peter Lee, as President, CFO and Director, along with Richard Sellers, as Executive Vice President of Mergers & Acquisitions. Mitchell Baruchowitz, who is the Managing Member of Merida Capital Partners, will be the Non-Executive Chairman of the Board of this SPAC.
As background on the sponsor, Merida Capital Partners, which launched its first fund in late 2016, is considered to be one of, if not “the”, largest private equity fund focused on the cannabis industry. And while they are still relatively new (having only been around for approximately three years), many of Merida’s investments have already gone public, such as GrowGeneration (OTCMKTS: GRWG), Vireo Health (OTCMKTS: VREOF) and CB2 Insights (OTCMKTS: CBIIF), to name a few. Looking at their website, their portfolios consists of no less than 31 companies, spanning a variety of different verticals within the cannabis space.
As for the team, Mr. Lee brings the financial chops having been involved as an investment professional for more than 20 years, primarily on the buy side. Whereas Mr. Sellers brings the cannabis experience having been involved in the cannabis industry for 20 plus years as well. Since January 2018, Mr. Sellers has served as the Vice President of US Operations for Origin House (CSE: OH), a multinational, publicly traded company with cannabis assets throughout North America’s cannabis market. Lastly, Mr. Baruchowitz, as the head of Merida Capital Partners, has been involved in over 100 cannabis transactions.
All of the above points to an experienced cannabis sponsor and team. However, cannabis (as a sector) has been under significant pressure since at least late spring. In fact, just this Monday, Breath of Life, an Israeli medical cannabis company, which had planned to raise C$150 million on the Toronto Exchange, delayed its IPO indefinitely citing “market conditions”. So is cannabis an attractive sector for a SPAC right now? That’s a complicated answer. Just because conditions are challenging now doesn’t mean they won’t improve when a SPAC is ready to announce an acquisition. Remember, this SPAC will have 24 months to announce and close a combination. However, many an investor has played the “if” gamble and lost. Further complicating the calculus is that we haven’t had a successful U.S. listed cannabis SPAC yet. We have a number of cannabis SPACs searching, but to-date, only MTech (KERN) has de-SPACed and it’s currently trading in the mid-$6.00 range. Plus, there are still issues around federal regulations and “touching the leaf”. However, what’s interesting about Merida is that in addition to listing on the Nasdaq, it also intends to apply to list on the NEO Exchange in Canada. In Canada, there aren’t issues around “touching the leaf”. So while Merida hasn’t been approved yet for the NEO, that would certainly make this SPAC more attractive.
However, looking at this SPAC’s structure, the terms are aggressive. This is a 100% in trust, 24 months, 1/2 warrant deal AND the team has the ability to remove $250,000 of interest from the trust, per year, for their working capital purposes. Both Silver Spike (SSPK) and Stable Road (on file to IPO, SRACU) have 100% in trust, 18 months, 1/2 warrant structures, and neither can remove interest for their working capital. Is the Merida team stronger than the Silver Spike and Stable Road team? That’s a matter of opinion, but all things considered, the Merida terms feel like a tough sell when you line up all three cannabis SPACs.
In summary, the terms look a little off and investors will probably push back on the $250K of interest and 24 months. However, maybe Merida already has cannabis sector investors teed-up and they won’t need to change terms. Stay tuned for any changes and look for this SPAC to price end of October.
Summary of terms below: