Investors are adding another “C” to the SPAC acronym. That is “C” for cannabis after Silver Spike Acquisition (NASDAQ:SSPK) and WM Holding Company struck a merger deal. SSPK stock surged as much as 23% in pre-market trading following the announcement.
Silver Spike raised $250 million in its August initial public offering. At the time, it was the third blank-check company taking aim at the cannabis industry. The SPAC is led by Scott Gordon, chairman of cannabis-focused investment firm Egg Rock Holdings and a former portfolio manager at Taconic Capital.
Target WM Holding is a cannabis technology platform that operates Weedmaps, an online listings marketplace for marijuana consumers and businesses, as well as WM Business, a software-as-a-service offering sold to cannabis retailers and brands. The California-based Weedmaps has been around since 2008.
Hands-Off Approach
One of WM Holding’s unique characteristics is that nothing in its core business touches the cannabis product. Importantly, this could be an advantage for investors otherwise afraid to get too close to cannabis. This also enables the company to trade on a U.S. stock exchange — most likely remaining on the Nasdaq. Investors should note that Washington will not allow a company to list shares on an exchange if the business touches plants.
“When you look at what we’re offering (to investors), there’s really not too much else like it,” WMH CEO Chris Beals told Reuters, which first reported new of the deal on Wednesday. He said the company is on track to post $160 million in revenue and has been profitable for its entire 12 years of operation.
Following the deal closing, the post-transaction equity value of the combined company is $1.5 billion, with $575 million of gross proceeds. Importantly, $250 million in cash comes from Silver Spike and a fully committed common stock PIPE — private investment in public equities — of $325 million.
“This acquisition continues to affirm both the need and market potential for quality SaaS offerings serving the cannabis market,” Jeffrey Harris, CEO of Springbig, told InvestorPlace, in an email. The company is a leading SaaS operator of customer loyalty and digital communication technology focused on cannabis retailing and marketing. “Almost on a daily basis, we see the need from our retailer and brand clients continues to grow … which implies quality SaaS businesses will continue to flourish as this market continues its rapid expansion.”
Timing Is Everything for SSPK Stock
The timing of the deal seems to be pitch perfect.
Last week, the U.S. House of Representatives voted to decriminalize marijuana at the federal level. This was the first time that Congress — either the Senate or the House — voted to end the federal ban on pot since the 1970 Federal Controlled Substance Act, the centerpiece of then-President Richard Nixon’s “War on Drugs.”
However, the legislation is likely to go nowhere as long as the Republicans dominate the Senate, according to most political analysts. U.S. legalization and decriminalization has been left to the states, as 15 states and the District of Columbia have legalized recreational cannabis use. More than 30 states permit some form of the substance for medicinal purposes.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, following fintech, agtech and property tech startups.
