Merida Merger Corporation I *
PROPOSED BUSINESS COMBINATION: Leafly
ENTERPRISE VALUE: $382.3 million
ANTICIPATED SYMBOL: LFLY
Merida Merger Corporation I proposes to combine with Leafly, the world’s leading online cannabis discovery marketplace and resource for cannabis consumers.
Leafly provides a subscription-based platform for more than 7,800 brands and 4,600 paying retail subscribers. Approximately 55% of North American retail licensees are currently subscribed to its marketplace and advertising services. As a non-plant touching platform with leading brand recognition, a user-friendly experience, and an established position in core growth markets, Leafly is well positioned to capitalize on accelerating legalization trends and e-commerce adoption across North America.
- Shoppers, retailers, and brands trust Leafly to make cannabis understandable and accessible
- Leafly has developed the most extensive content library in the cannabis market, attracting the largest audience in cannabis
- Community-driven, three-sided marketplace with retailers, brands, and high-value shoppers
- The company generates subscription and advertising revenue from licensed retailers and brands
- A flexible platform that scales and sits at the center of the $19 billion rapidly growing legal cannabis market
- Consumers use Leafly to learn about cannabis, the cannabis industry, and cannabis politics before their states legalize, giving Leafly a head start
- As consumer ordering shifts online, Leafly helps consumers navigate a complicated industry
- Leafly is at an inflection point to accelerate growth and monetization
- Projected revenue of approximately $43 million in 2021E and $65 million in 2022E, representing ~52% annual growth with gross margins of ~88% as Leafly further penetrates current markets and capitalizes on its strong position in the newly legalized East Coast
SUBSEQUENT EVENT – 1/12/22 (8-K LINK)
- The $30 million financing will be in the form of unsecured convertible senior notes due 2025.
- The notes will bear interest at a rate of 8.00% per annum, paid in cash semi-annually in arrears on July 31 and January 31 of each year.
- The notes will be convertible at the option of the holders at any time before maturity at an initial conversion share price of $12.50 (80 shares of the company common stock per $1,000 principal amount of notes or accrued and unpaid interest, if any, thereon).
- In addition, the company has the option after one year to redeem all or a portion of the notes for cash equal to the principal or force the conversion of the notes after two years based on pre-agreed share price thresholds.
- Pursuant to the note purchase agreement, Merida has agreed to pay Cohanzick (and/or its designees) a 1.25% commitment fee, which fee will be paid through the transfer of shares of Merida common stock held by Merida’s sponsor, and transfer an aggregate of 300,000 private warrants held by the sponsor to the investors.
- The Special meeting of Merida stockholders will be moved to a later date to vote on the proposed business combination. Originally set for 1/14/22
SUBSEQUENT EVENT – (8-K LINK)
- Merida entered into additional agreements with two Public Stockholders (the “Additional Non-Redemption and Forward Purchase Agreements”), pursuant to which the Public Stockholders agreed not to seek redemption of up to 1,800,000 Public Shares in connection with the Business Combination Meeting.
- The Additional Non-Redemption and Forward Purchase Agreements provide that the Public Stockholders shall have the right, but not the obligation, to have Merida repurchase any of such Public Shares held by them as of the Closing and not later sold into the open market at a price of $10.16 per share on the three-month anniversary of the Closing; provided, however:
- That if the Public Stockholders sell any of their Public Shares in the open market prior to the one-month anniversary of the Closing at a price in excess of $10.06 per share, the Company will pay the Public Stockholders $0.05 per Public Share sold irrespective of the sale price received by such Public Stockholders.
- At closing, the combined company is expected to have an implied, fully diluted enterprise value of approximately $385 million and equity value of approximately $532 million, subject to any redemptions by Merida stockholders.
- Existing Leafly shareholders will roll 100% of their existing stake in Leafly and, upon closing, are expected to own approximately 72% of the combined company on a pro forma basis, assuming the company receives 100% of the proceeds currently held in trust.
- The transaction is expected to generate proceeds of up to $161.5 million, subject to any redemptions by Merida stockholders.
- This follows and is inclusive of Leafly’s recent $31.5 million capital raise led by leading cannabis-focused investors, including Merida Capital Holdings, Delta Emerald Ventures, SOJE Capital, and Leafly’s existing shareholder base.
- The proceeds of the capital raise and transaction provide Leafly with substantial capital to enhance its advertising and platform technology, expand its marketplace, and execute customer acquisition initiatives.
- No PIPE Investment
- 6.0MM shares in earn-outs to Leafly’s equityholders
- 3.0MM shares vest if Leafly achieves $65.0MM in 2022 revenue OR stock trading to $13.50
- 3.0MM shares vest if Leafly achieves $101.0MM in 2023 revenue OR stock trading to $15.50
- MCMJ deferring 50.0% of promote into earn-outs
- 25% vest if stock trades to $13.50
- 25% Vest if stock trades to $15.50
ESCROW AGREEMENT (AMEDMENT)
- Concurrently with the execution of the Merger Agreement, Merida, the Sponsor, and Continental Stock Transfer & Trust Company entered into an amendment to the escrow agreement (“Escrow Amendment”) providing, among other things, for the forfeiture and cancellation of the Forfeited Shares and that the remaining shares held in escrow will either be released to the Sponsor or terminated and canceled by Merida depending on whether certain earnout conditions are met or not, as follows:
- (a) 50% of such shares shall be released from escrow at the Closing in the event that the Minimum Cash Condition is satisfied (subject to partial credit if Merida delivers at least $65 million in cash at the Closing)
- (b) 25% of such shares shall be released from escrow upon the occurrence of the First Price Triggering Event
- (c) all remaining shares shall be released from escrow upon the occurrence of the Second Price Triggering Event
- (d) if a Change of Control that will result in the holders of Merida Common Stock receiving a per share price equal to or in excess of the share price required in connection with the First Price Triggering Event or the Second Price Triggering Event occurs at a time when sponsor shares are held in escrow, then immediately prior to the consummation of such Change of Control
- (i) the applicable triggering event that has not previously occurred shall be deemed to have occurred
- (ii) the applicable shares will be released from escrow.
- On the business day following the date that is three years after the Closing, all shares not released from escrow will be forfeited and cancelled.
- The forfeiture of such number of shares of Merida Common Stock held by the Sponsor (such shares, the “Forfeited Shares”) equal to the quotient of the amount by which Merida’s transaction expenses exceed $6.5 million divided by $10.00, provided, that variable fees paid or required to be paid to capital markets advisory firms engaged by Parent will not be included for purposes of determining whether Merida’s transaction expenses exceed $6.5 million,
- The remaining shares held in escrow will be released or forfeited, as the case may be, upon the satisfaction or failure to satisfy certain earnout conditions and for such shares to be subject to a six month lock-up.
- The Sponsor agreed to subscribe for and purchase up to $10 million of shares of Merida Common Stock, at a price per share not to exceed $10.00, in the event that the Minimum Cash Condition would not be satisfied as of Closing.
- Sponsor and Seller: six months from closing
NOTABLE CONDITIONS TO CLOSING
- $85,000,000 (“Minimum Cash Condition”)
NOTABLE CONDITIONS TO TERMINATION
- The Closing has not occurred on or before February 5, 2022 (“Termination Date”)
- In the event the Merger Agreement is terminated by Merida because Leafly’s board of directors has changed its recommendation to the Leafly shareholders with respect to the Transactions or by Leafly because Leafly’s board of directors has determined to enter into a definitive agreement with respect to a Superior Proposal, Leafly shall pay Merida a termination fee in an amount equal to $7,700,000.
- Oppenheimer & Co. served as exclusive financial advisor to Leafly
- Weil, Gotshal & Manges LLP served as Leafly’s legal advisor.
- EarlyBirdCapital, Inc. served as financial advisor to Merida.
- Craig-Hallum Capital Group LLC, JMP Securities, LLC, and The Benchmark Company, LLC are serving as capital markets advisors to Merida.
- Graubard Miller acted as Merida’s legal advisor.
MANAGEMENT & BOARD
Peter Lee, 43
President, Chief Financial Officer & Director
Mr. Lee has spent more than 20 years as an investment professional in both public markets and private equity. Since April 2018, Mr. Lee has been an independent investor and consultant for hedge funds. From 2011 to April 2018, he co-founded and was a Managing Partner at Sentinel Rock Capital, LLC, a long/short equity oriented hedge fund. Prior to this, from 2009 to 2011, he was an Analyst and a Partner at Spring Point Capital, a long/short equity oriented hedge fund. From 2007 to 2009, he was the sector head for financial services and retail industries at Blackstone Kailix, the long/short equity hedge fund business of The Blackstone Group. From 2005 to 2007, he was an analyst at Tiger Management evaluating public investments. Mr. Lee joined Tiger Management out of business school. Earlier, Mr. Lee focused on growth private equity investing in financial services and financial technology companies as a senior associate at J.H Whitney & Company from 2000 to 2002 and an associate at Capital Z Partners from 1999 to 2000. Mr. Lee began his career in 1997 as an analyst at Morgan Stanley Capital Partners, the private equity investment fund of Morgan Stanley. Mr. Lee received a B.S. in Business Administration from the University of California at Berkeley Haas School of Business and an MBA from Stanford Graduate School of Business.
Richard Sellers, 49
Executive Vice President of Mergers & Acquisitions
Mr. Sellers has been involved in the cannabis industry for over 20 years. Since January 2018, Mr. Sellers has served as the Vice President of US Operations for Origin House (CSE: OH), a multinational, publicly traded company with cannabis assets throughout North America’s cannabis market. In addition to his duties in operations at Origin House, he has been instrumental in identifying, evaluating, negotiating, closing and transitioning multiple mergers and acquisitions. Previously, in January 2015, Mr. Sellers founded Alta Supply, California’s first formal cannabis distribution company. In March 2016, he also founded KAYA Manufacturing, one of the first California state licensed cannabis manufacturing companies. Kaya’s facility produces several cannabis products including gourmet cannabis chocolate, gummies, premium vaporizers, and mouth sprays. Alta Supply and Kaya were acquired by Origin House March 2018. From January 2010 to June 2019, Mr. Sellers was with Bhang Inc. (CSE: BHNG), a publicly traded company he co-founded and served as its Senior Vice President of Business Development. Bhang has become one of the most widely distributed cannabis brands in the world.
Board of Directors
Mitchell Baruchowitz, 45
Non-Executive Chairman of the Board
Mr. Baruchowitz has approximately 20 years of experience in the legal and finance fields. He also has nine years of experience in the legal cannabis industry. Through his leadership of Merida Capital Partners and his expertise in the diverse licensing regimes governing each state, Mr. Baruchowitz has been involved in over 100 cannabis transactions with a notional value over $1 billion. Mr. Baruchowitz has served as the Managing Member of Merida Advisors, LLC and the Managing Partner of Merida Capital Partners since September 2016. From April 2005 to March 2007, he served as the Associate General Counsel and Chief Compliance Officer of MarketAxess, a publicly traded financial technology company. He was also the General Counsel of investment banking boutique Pali Capital from October 2007 to May 2010. From May 2010 to October 2013, he served as the General Counsel of ACGM, Inc. In March 2013, he cofounded Theraplant, LLC, where he architected the highest scoring application in Connecticut’s highly selective licensing process. From October 2013 to October 2016, he served as the Head of Investment Banking of CAVU Securities. In 2014, he cofounded Leafline Labs, LLC, which was one of only two Minnesota companies to win a license to cultivate and dispense cannabis in extracted form. He formerly sat on the Board of Leafline Labs as well. In 2015, Mr. Baruchowitz co-founded a Nevada cultivator that also holds interests in two dispensary licenses. In 2016, he founded Merida Capital Partners and Grow West MD, a cultivator licensed in Maryland. He currently sits on the Boards of New Frontier Data, Simplifya, Mainstem, Steep Hill Labs and Manna Molecular Sciences. Mr. Baruchowitz received a B.A. in History from Brandeis University and a JD from Boston University School of Law. He is a member of the New York and Massachusetts Bars and holds FINRA 7, 24, 63 and 79 licenses.
Jeffrey Monat, 41
Mr. Monat has been investing in cannabis companies since 2013, having made investments in cultivation and ancillary businesses. He has been with Merida since 2018 and is a partner in all three of its funds, where he serves in a primary analytical role for the funds’ investments. Since 2018, Mr. Monat has served as Chairman of the Board of Steep Hill Labs. From 2000 to 2002, he was with Goldman Sachs, where he advised clients on M&A transactions, financial valuation, and corporate governance issues. He worked in the Goldman Sachs Principal Strategies Group from 2002 to 2003, analyzing public-market opportunities for the firm’s proprietary investment fund. From 2003 to 2010, he was an investment analyst at Rockbay Capital, where he helped grow the firm to $1 billion in assets under management. From 2010 to 2012, he was with FrontPoint Rockbay, an event-driven hedge fund in New York where he evaluated prospective investments and helped build the firm’s investment analysis infrastructure. Mr. Monat also served as a Senior Analyst at Seven Locks Capital, a long/short equity hedge fund from 2012 to 2016 and was a Senior Analyst at Sage Rock Capital, an event-driven hedge fund based in New York from 2016 to 2018. Mr. Monat received a B.S. in Economics from The Wharton School of the University of Pennsylvania.
Andres Nannetti, 42
Mr. Nannetti brings over twenty years of domestic and international business leadership and experience as both a CEO of companies and private equity principal investor. Since August 2018, Mr. Nannetti has served as Executive Chairman of Natuera Sarl, a Luxembourg-based global cannabis contract development and manufacturing organization with its initial production operations in Colombia. Natuera is a 50/50 Joint Venture between the Cronos Group, a publicly traded Toronto based leading global cannabinoid company whose main investor is Altria and Monaco Investments, and an affiliate of Agroidea SAS, Colombia’s leading agricultural services provider with over 30 years of research, development and production operations. Since 2005, Mr. Nannetti has also served as Managing Director of Leawood Investments, a privately held holding company whose direct and affiliated holdings include cannabis cultivation and manufacturing of derivative products, real estate development, fresh cut flower growing, and agricultural services companies in Colombia, and retail operations in the US. From 1999 to 2002, Mr. Nannetti was Co-founder and CEO of Rovia Inc., a Boston-based digital rights management software provider that was subsequently acquired by Enchoice. Mr. Nannetti began his career in 1998 at JP Morgan in the Latin America M&A and Morgan Capital Private Equity Groups. Mr. Nannetti received a BS in Economics from the Massachusetts Institute of Technology and an MBA from Stanford Graduate School of Business.