SPACs, G-Corps and Canadian weed: Smoke and mirrors or future high flyers?

18 May

SPACs, G-Corps and Canadian weed: Smoke and mirrors or future high flyers?

The special purpose acquisition companies (SPAC)-mania in the US has yet to spread north of the border, but that could be set to change.

In Canada, SPACs have primarily been used to take cannabis businesses public, following the country's legalization of recreational marijuana use two years ago. But even with the buzz surrounding that fledgling industry, Canadian SPACs are still few and far between.

This is partly a reflection of the country's smaller capital markets but also the strong investor appetite for equities supporting garden variety IPOs.

According to Dealogic, just two SPACs were formed in Canada in 2020. The first, Ceres Acquisition, listed in March 2020 and announced its de-SPAC (when a blank check company finally finds a deal target to merge with) in February 2021, with Atlanta-based cannabis company Parallel.

The other, Nextpoint Acquisition, listed in August 2020, was a somewhat less pungent strain. The SPAC acquired tax preparation service provider Liberty Tax and consumer and small business lender LoanMe, both also US companies.

Token SPACs?

In April this year, Mercer Park Brand Acquisition—a SPAC that listed back in May 2019—announced a deal with California cannabis company Glass House Group for US$567 million. That same month, the CEO of British Columbia-based Choice Consolidation, which floated in February, told Mergermarket that it is seeking a US cannabis business in the US$600 million-US$1 billion range.

Ceres, Mercer Park and Choice have more than just a penchant for pot in common. All three are listed on the NEO Exchange, which was marketed as Canada's “new stock exchange” when it was launched in 2015 to support the country's innovation economy.

Strange brew—the dawn of the G-Corp

Last month, NEO presented investors with its answer to the SPAC—the G-Corp (short for “Growth Acquisition Corporation”)—and this newbie hopes to fill a gap in the market.

Whereas SPACs are ideally suited for larger high-growth companies, allowing them to leapfrog a number of regulatory hurdles when going public, the G-Corp is tailored for mid-cap companies in the US$50 million to US$500 million range. This may make them more suitable for Canada's generally more modest-sized deals.

One of the key differences between a SPAC and a G-Corp is that the former typically raises more than US$100 million while the average G-Corp raises just US$8 million. The lower bar has the potential to see blank check deals grow in popularity in Toronto—though they’re not likely to blow up as they have in New York.

The real question, however, is whether investors will have an opportunity to take a hit on anything other than weed deals.

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