Collective Growth Files for a $150M Cannabis SPAC


Collective Growth Files for a $150M Cannabis SPAC

This morning, Collective Growth Corp. (CGROU), filed for a new $150 million SPAC focused on the Cannabinoid sector.  This team will be led by Bruce Linton, as Chairman and CEO, having previously founded and served as Chairman and CEO of Canopy Growth (NYSE: CGC), a diversified cannabis, hemp and cannabis device company. Additionally, Mr. Linton will be joined by Geoffrey Whaling, as President, Tim Saunders, as CFO, and Wilson Kello, as Chief Marketing Officer, all having recently worked for Canopy Growth (or adjacent to Canopy Growth, in Mr. Kello’s case) as well. So while this SPAC is named “Collective Growth”, it’s a little bit like “Canopy Growth II”.

However, it should be noted that Mr. Linton was asked to step down as CEO and Board Member of Canopy Growth last June. If you recall, the cannabis sector came under significant pressure starting late last spring/early summer, and it seems the board of Canopy Growth wasn’t willing to give Mr. Linton time to grow his company.  Make of that what you will, but there’s no denying that he does have a significant amount of cannabis company experience.  And public cannabis company experience to boot.  Put it this way….he knows the good, the bad and the ugly.

Additionally, while this SPAC will be looking in the cannabis space, it is specifically looking at cannabinoids, which are the chemicals derived from cannabis (CBD oil comes to mind). Cannabinoids that have been developed and taken from hemp plants are legal and can be found in many markets. However, Cannabinoids derived from Marijuana plants are only legal in some states.  However, the prospectus does say that Collective Growth intends to focus on the “Federally permissible cannabinoid industry”.  However, even if this team finds a company in the non-permissable category, they can probably just re-list in Canada.  Although, it would have been interesting to see an upfront dual Nasdaq/Neo (Canada) listing such as what Merdia Merger Corp. I did, to take advantage of both target universes.

As for this SPAC’s structure, it will be a 24 month, 100% in trust 1/2 warrant IPO, with a Crescent Term threshold of $9.20.  Standard stuff.  But again, we already have six SPACs out currently searching for targets within the cannabis sector.  Collective Growth will be the seventh. Plus, three of those six SPACs are $150 million in size, which is the same size as Collective Growth, with a fourth SPAC at $120 million.  That’s a lot of fish trying to feed in the same pond.  What investors would really like to see is an ANNOUNCED cannabis deal.  And if it’s a good one, the cannabis IPOs become a far easier sell.

Since while this SPAC does have a “cannabis brand-name” team, there’s still a little bit of noise surrounding the deal.  That could be compounded by the current market conditions, but it will be a good SPAC to use as a litmus test to see how it performs in a market that has been shut to traditional IPOs.  To clarify, the 1/4 warrant deals shouldn’t be affected in this market, but it’s the SPACs below that tier that we will want to watch and see how they do to gauge where the larger SPAC market is headed.

Summary of terms below:

Collective Growth Summary of terms