As the cannabis public marketplace welcomes more special purpose acquisition companies (SPACs), one investment fund secured a dual listing in the US and Canada — a first for cannabis SPACs.
Earlier in November, Merida Merger Corp I became the first SPAC to list both on the emerging Canadian NEO Exchange and the NASDAQ.
After raising US$120 million in its initial public offering (IPO), Merida listed on the NASDAQ under “MCMJU” and on NEO under “MMK.UN.”
The new SPAC is backed by cannabis-focused private equity firm Merida Capital Partners and seeks to acquire and assist in growing a business in the cannabis industry.
Despite its mandate, the New York-based investment firm isn’t limited to cannabis entirely and may also consider opportunities outside of the US, the company said.
SPACs are publicly traded companies that seek capital from investors through an initial public offering (IPO) for the purpose of acquiring an existing company. The capital raised through the IPO is put into a trust until the SPAC identifies an acquisition or merger target.
Along with other restrictions, SPACs have a certain period of time — usually 24 months — within which they must complete their transactions.
Peter Lee, president and CFO at Merida, told the Investing News Network (INN) the firm took a measured approach to its IPO since the SPAC will be narrowing its focus to smaller cannabis businesses.
“We just personally believe the greatest need for capital (is) for companies that are in the smaller end, … three to five hundred plus million market cap ranges,” Lee said. “We would like to assess the minority stake and … partner with a company to see it enter the public markets and also grow over the next three to five years.”
The IPO was originally set at 10 million units at US$10 for one share and half of a warrant for a total of US$100 million in proceeds.
Lee added that two-thirds of the companies in the firm’s portfolio currently don’t touch the cannabis plant directly and work as ancillary businesses in the marijuana industry.
In Merida’s view, heavier investment into non-plant touching-companies is a strategic move in the long run as the industry begins to legitimize in the US, Lee explained.
“We just have an investment thesis or view that as illicit markets legalize, that typically increases regulation, and when regulation increases, it’s a key growth driver for the picks and shovels of the industry,” Lee said.
As of 12:02 p.m. EST, prices were at US$10 on the NASDAQ. On the NEO, Merida closed on Friday (November 22) at C$9.95.
Merida joins other cannabis SPACs on the NEO
The addition of the Merida SPAC makes it the sixth to list on the NEO. In 2019, the exchange has seen an uptick in listings using this tactic, which some experts say offers more stability to investors.
“With a SPAC, you’re investing in a management team who’s going to go out and acquire assets … in the future,” Anna Serin, director of listings development with the Canadian Securities Exchange, said during a panel at an investor event in Vancouver earlier this year.
Another cannabis-focused SPAC, Subversive Capital Acquisition, debuted on the Canadian exchange in July after completing a US$575 million IPO, the largest for an SPAC in Canadian history.
NEO CEO Jos Schmitt previously told INN the introduction of Subversive to the exchange was an indicator of the high level of interest in the cannabis sector.
“We’re looking at what is the largest, regardless of industry or sector … SPAC that’s ever been listed in Canada, and I think that is a token about the interest and appetite in this industry and the opportunity it represents,” said Schmitt.
Multi-state operator (MSO) Ayr Strategies (NEO:AYR.A) began trading on the NEO earlier this year after first launching as the SPAC Cannabis Strategies Acquisition. Merida also joins Columbia Care (NEO:CCHW,CCHW.WT), which merged with an SPAC from banking firm Canaccord Genuity Group (TSX:CF) in April to reach its listing.
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.