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SPACs: Emerging Titans of Cannabis and Hemp
by Scott Hammon, Cannabis Practice Leader Welcome to the Cannabis M&A Field Guide from MGO. In this series, our practice leaders and service providers provide guidance for navigating M&A deals in this new phase of the quickly expanding industries of cannabis, hemp, and related products and services. Reporting from the front-lines, our team members are structuring deals, implementing best practices, and magnifying synergies to protect investments and accrete value during post-deal integration. Our guidance on market realities takes into consideration sound accounting principles and financial responsibility to help operators and investors navigate the M&A process, facilitate successful transactions, and maximize value. ~ Special Purpose Acquisition Companies, or SPACs, have been steadily rising in prominence over the last year, earning headlines with a number of eye-popping capital raises and making acquisitions that took high-profile companies public, including Virgin Galactic and electric carmaker Nikola. Previous, a relatively niche investment vehicle, many cannabis and hemp industry operators are still not clear as to how these investment companies operate, and what one should do if approached by a SPAC for an acquisition. In the following we will lay out the basics of SPACs and provide key considerations for cannabis operators and entrepreneurs approached by, or courting, investors.
The fundamentals of SPACSSimply defined, a SPAC is a shell company formed by founders/sponsors in order to raise investments through an IPO to acquire an existing company/companies. The key players involved are:
- Founders/Sponsors: Generally subject matter experts in their industry fields with credible market reputations.
- IPO Investors: Typically include institutional investors, equity funds, and the general public.
- Target company: A private company in the industry/sector stated as the SPAC’s focus during the IPO process.