Capital Raising

Cannabis Capital Markets in New York: M&A Deals and Capital Raises Are Skyrocketing

When New York became the 15th state to legalize recreational cannabis on March 31, 2021, it opened one of the largest cannabis markets globally. Not surprisingly, the state’s capital raises and M&A activity in the cannabis space have meteorically accelerated following the legislature’s legalization of adult-use cannabis.

Gov. Andrew Cuomo signed into law the New York State Marijuana Regulation and Taxation Act (MRTA) to legalize recreational use of marijuana for adults over the age of 21, although the recreational market in New York will take longer to bloom. The state’s timeline for opening recreational cannabis dispensaries was originally expected to take at least 18 months, but this projection may be further delayed due to an apparent legislative impasse over who should lead the new Office of Cannabis Management and the Cannabis Control Board, which were created under the MRTA to regulate New York’s legal cannabis industry.

Nonetheless, the enthusiasm of the capital markets cannot be contained. A recent graph from Viridian Capital Advisors tracks year-to-date capital raises and M&A deals with New York-based companies as either acquirers or targets:

As noted by Viridian, both capital raises and M&A transactions have skyrocketed to record levels since New York legalized … Keep reading

SPACs – Hedging Risks in Light of SEC’s Urge for Market Slowdown

Special purpose acquisition companies (SPACs), or “blank check” companies, have been one of the most popular investments and investment vehicles over the past year – an alarming 308 SPACs have gone public since the start of 2021. In particular, SPACs have played a major role in supporting the marijuana funding boom since the cannabis industry faced a drought in late 2019. In just the first three months of this year, three SPAC initial public offerings have totaled over $570 million.

However, signals glaring from the U.S. Securities Exchange Commission (SEC) have attempted to slow down the momentum of the SPAC market. A few of these public statements so far this year include:

  • A public statement in March 2021, by Paul Munter, Chief Accountant of the SEC, highlighting the complexities encompassed by the trustworthiness of the SPAC financial reporting, governance and quality of audits.
  • A public statement on April 8, 2021, by John Coates, Director of the SEC’s Division of Corporation Finance, indicating that SPAC’s compliance with disclosure and filing requirements are in the close purview of the staff, and underscores legal liability corresponding to SPAC disclosures once a target is acquired.
  • A public statement made on April 12, 2021,
Keep reading
Recent Federal Cannabis Cases Involving Raising Capital

Federal securities regulators recently obtained judgments in two enforcement actions brought in federal court in California and Illinois involving cannabis-related businesses raising capital. At a high level, the recent trend we have observed in these recent securities enforcement actions is the general emphasis, as we would expect, on (i) accuracy and completeness of material disclosures to investors, (ii) investor solicitation activities, including use of unregistered broker-dealers by issuers, and (iii) properly conducting compliant securities offerings.   

1. SEC v. Geoffrey J. Thompson, No. 1:20-cv-05205 (N.D. Ill. Jan. 20, 2021)

Geoffrey Thompson, a repeat securities law violator, and his company Covalent Collective, Inc., a supposed cannabis company, allegedly conducted numerous offerings of unregistered securities from 2014 to 2019, ultimately raising more than $19 million from approximately 500 investors. The Securities and Exchange Commission (SEC) alleged that Thompson diverted over $2.7 million of funds from investors while serving as CEO of Covalent Collective, a Canadian corporation operating out of Longmont, Colorado.

Among other allegations, the SEC alleged that investors were lured in by Covalent’s use of unregistered broker-dealers; an investor relations firm; a call center maintained by Fortress Legacy LLC, another of Thompson’s companies; and other fraudulent investor-facing solicitations, including audio updates … Keep reading