In 2020, most of the investments that were made in the cannabis space came from SPACs, or special purpose acquisition companies, Benzinga's Javier Hasse said on this week's BZ Cannabis Hour. Video embedded below.
There was a 70% dip this year compared to last year, with most of the capital coming from SPACs, including one helmed by Joe Crouthers, Ceres Group CEO.
"How do you raise $120 million in an environment like the current [one]?" Hasse asked.
Over the past year, pre-COVID pandemic, cannabis was already a "capital restricted market," Crouthers said. If you were looking to raise $5 million or above "you were [likely] struggling for those larger checks."
"That's been a problem cannabis has dealt with since the beginning," he said. Institutions were dried up. However, we're starting to feel our way out of that via SPACs.
"SPACs make sense even for non-cannabis companies," Crouthers said, citing "the lack of options." There are very few reverse takeovers and traditional IPOs. And so the question remains: "How do we fund cannabis in the right way?"
A SPAC, for investors, provides a free look into a potential deal where — in the meantime — you can earn "a treasury-like return," Crouthers said. "They allow investors to dip their toes into cannabis."
"I think that's why there's interest there," he explained. "SPACs are going to play a huge role going forward and certainly an important role inside the cannabis ecosphere as well."
Scott Greiper, President of Viridian Capital Advisors, also chimed in on the importance of SPACs in the cannabis industry.
"Asset values are depressed, companies are in distress [and] acquirers are in a better position to buy," he said, citing how investor Bill Ackman is currently raising a $5 billion SPAC.
They also indicate to the market that there are assets to buy, Greiper said. SPACs, which raised about $900 million this year so far, provide a way for institutional investors to enter the industry and focus acquisition efforts on non-plant touching companies.
Since 2012 — since Colorado and Washington became recreationally legal — "the big players are still not here," Greiper said. "We're always trying to evolve our platform, the companies we represent [and] our board, to be prepared for this onslaught of activity that wants to come in but they're just nervous on the legal aspects of scheduling."
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