NEO Exchange Lists Real Estate-focused Cannabis SPAC

The NEO Exchange has welcomed its newest special acquisition company (SPAC) — a real estate investment trust (REIT) focused specifically on the marijuana industry.

Last week, the Subversive Real Estate Acquisition REIT debuted its Class A restricted voting units on the Canadian exchange under the symbol SVX.UN following a US$200 million initial public offering (IPO).

This newest addition is the seventh cannabis-focused acquisition company to list on the NEO and the second to come from New York-based private equity firm Subversive Capital, which launched Subversive Capital Acquisition (NEO:SVC.UN.U) in July last year. Subversive Capital Acquisition’s IPO came in at a whopping US$575 million, making it the largest SPAC IPO in Canadian history, as per a press release.

SPACs are publicly traded companies that seek capital from investors through an 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 it plans to pursue with the funds. Along with other restrictions, SPACs have a certain period of time — usually 24 months — within which they must complete the acquisition.

Subversive’s REIT was born out of a three way collaboration between Subversive, Canaccord Genuity (TSX:CF) and The Inception Companies, a private equity company that is behind the cannabis-focused Inception REIT.

The Inception Companies is led by CEO Richard Acosta, who said in an interview with the Investing News Network (INN) that the companies came together in November last year and leveraged their shared expertise in the marijuana space to quickly raise the funds for the SPAC.

Acosta noted that the launch of Subversive’s REIT comes at a particularly key point for the cannabis market after a harsh “rerating” of public equities that shook investor sentiment last summer.

“A lot of what resonates with respect to our mandate is we’re out investing in assets at a time when the market is recalibrated,” he said.

The new SPAC REIT aims to have assets across the cannabis supply chain in the US initially, but hopes to focus on the industrial and retail segments of the chain, including cultivation, manufacturing and traditional storefronts.

Acosta added that as time progresses, the sector will see the withdrawal of weaker businesses and the success of firms with strong management teams and balance sheets.

“I think it’s an interesting time to be out evaluating opportunities on this side of that series of events as opposed to before the run up in valuation,” Acosta told INN.

Cannabis sector could see more SPACs moving forward

Now that the marijuana industry is “on the other end of the correction,” Acosta said he expects more cannabis-focused SPACs to begin popping up as an alternative for investors who are interested in the industry, but may not have a specific company in mind.

Jos Schmitt, president and CEO of the NEO Exchange, shared the sentiment, saying that the industry could be introduced to cannabis SPACs dedicated to other parts of the marijuana universe, including research and development and intellectual property.

More broadly, Schmitt said that as an emerging industry in the process of stabilizing, the cannabis space is inviting for acquisition companies, allowing investors to team up with expert players in the market.

When it comes to Subversive’s SPAC REIT, Schmitt noted that the offering is well positioned to be used by companies as a means to get their hands on crucial retail assets.

“You can see that opportunity of companies that are going to shed off some of their capacity,” Schmitt told INN. “Regardless of who the winners are, they’re going to need space and real estate.”

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.