🗺️Weedmaps to go public via Silver Spike SPAC at ~$1.5B valuation

A lot of big Cannabis news today (12/10/20), but this was by far the biggest

📣A lot of Cannabis news in the past 24 hours, but none made more noise than the leaked Weedmaps/SSPK deal from Reuters last night, and the filing that dropped today. I’ll put more details in my weekly newsletter, but wanted to highlight just how big of a news day this was for the Cannabis industry:

  1. Weedmaps agrees to $1.5 billion deal to go public

  2. Leaflink raises $40M led by Founders Fund

  3. The Parent Company (Subversive/Caliva/LCV) launched MONOGRAM

  4. Hydrofarm IPOed at $20.00, closes at $51.99 (+160%)

  5. GrowGeneration raises $150M follow-on offering

  6. Ayr Strategies closes $110M debt offering


Silver Spike Acquisition Corp. (SPAC) + WM Holding Company

Thoughts:

Packaged for a Pop. The SPAC’s stock (SSPK) closed up 37% today. This transaction checks all the boxes for an announcement pop:

SPAC. $75B+ raised across 221 SPAC IPOs in 2020 to date (SPACInsider.com)

Tech (Vertical SaaS / Marketplace)

Cannabis

Major Exchange (Nasdaq listing provides ease of access, 30.7M volume on Day 1)

Built for Robinhood, r/wallstreetbets

Competition. Increasing competition that has raised traditional VC funding to compete with the company’s offering – retail management (Flowhub, Meadow), consumer marketplace (Dutchie, Jane, Leafly), B2B platform (Leaflink), and Routing (Onfleet) likely convinced WHS that they could use the ~$100M to punch back

Risk. As highlighted in the appendix of the investor presentation, there’s currently a pending DOJ investigation into the company. The company has stated that they’ve had productive discussions about a potential resolution, but no agreement has been reached. Weedmaps also ran into trouble in 2018 with the CA BCC because it allowed illegal cannabis dispensaries to list/advertise on its platform. There’s already an investigation around whether or not the Silver Spike Board breached its fiduciary duties to shareholders by failing to conduct a fair process, including the dilution of ownership interest (17%) in the combined company (I’m reading this as they think it might have been an overpay).

Highlights:

  • WM Holding Company, LLC (“WMH” or “WM Holding”) operates Weedmaps, the leading online listings marketplace for cannabis consumers, and WM Business, a comprehensive software-as-a-service (“SaaS”) subscription offering for cannabis retailers and brands (Yelp/Google Review for Cannabis + Veeva for Cannabis)

  • The estimated post transaction equity value of the combined Company is ~ $1.5B and provides up to $575M of gross proceeds through the ~$250M of cash held-in-trust by Silver Spike Acquisition Corp. and a fully-committed common stock PIPE of $325M (PIPE of this size signals strong demand)

  • As a result of outsized demand, the PIPE offering was significantly oversubscribed and upsized, including investment from funds managed by AFV Partners, the Federated Hermes Kaufmann Funds and Senvest Management LLC along with a $35M commitment from Silver Spike Capital (PE firm affiliated with Sponsor)

  • WM Holding’s executive officers will retain 100% of their equity in the combined company, which will have ~$100M of cash on hand after closing (meaning investors or co-founders/early employees no longer involved in the company sold in secondary)

Company Overview:

  • Founded in 2008, WMH operates Weedmaps and WM Business

  • Combines the largest audience of frequent cannabis users with the broadest set of brands & retailers, supporting those businesses with a complete tech stack

  • WMH provides consumers with information regarding cannabis retailers and brands, as well as the availability of cannabis products, facilitating product discovery and online order-ahead for pickup or delivery by participating retailers

  • Chris Beals, WMH’s CEO, will continue to lead the Company along with the existing management team.

Key Highlights:

Weedmaps:

  • 10M+ MAUs, ~70% of users consume daily, 90% purchase monthly

    • Huge growth since pandemic, 6M MAU in January 2020

  • ~$100 AOV, 65% of users purchase from dispensaries

Weedmaps Business:

  • 18K+ listings/$1.5B+ run-rate GMV (4K+ on monthly subscription bundle)

    • +300 from January 2020, while monthly revenue/client +$1,000 to ~$3,600

Financials:

  • 2020E: $160M revenue / $35M EBITDA

  • Loses $29M in 2019A revenue by removing unlicensed retailers

  • Estimates 40% CAGR for 2020E–2023E (same as 2015-2019A CAGR)

  • 2021E Multiples: 6.8x EV/Revenue, 28.0x EV/EBITDA

  • 2022E Multiples: 4.7x EV/Revenue, 17.5x EV/EBITDA

Weedmaps Business

Strong ARPU (~$1,500/monthly) and LTV/CAC (~1.8x in 6 months, ~3.0x in 12 months)

Favorable Cost-per-Click (CPC) vs. other industries ($0.50/click w/ 13% CTR)

Only 4 existing markets have reached retailer density (1 license per 10,000 people)

Growth

Only up to $100M to Company’s Balance Sheet (mostly secondaries)

Team

About Company / Sponsor:

WM Holding Company:

WM Holding Company, LLC (WMH), parent company of Weedmaps and its WM Business SaaS offering, is the leading technology and software infrastructure provider to the cannabis industry. Founded in 2008, WMH is the leading two-sided marketplace and SaaS provider to the cannabis industry, comprising the Company’s B2C marketplace, Weedmaps, and its B2B software, WM Business. The Company’s cloud-based SaaS solutions provide an end-to-end operating system for cannabis retailers. These tools support compliance with the complex, disparate and constantly evolving regulations applicable to the cannabis industry. Underlying this compliance functionality is a proprietary and sophisticated rules engine that is a core underpinning of the WM Business SaaS platform. Through its website and mobile apps, WM Holding provides consumers with the latest information, data and availability of cannabis products, facilitating product discovery and driving sales for our customers. Headquartered in Irvine, California, WMH employs ~400 professionals around the world (Denver, New York, Ontario, Canada and Barcelona, Spain)

Silver Spike Acquisition Corp.:

Silver Spike Acquisition Corp. (SSAC), an affiliate of Silver Spike Capital, is a $250M blank check company formed for the purpose of effecting a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more businesses.

The management team and board of directors are composed of veteran cannabis and finance industry executives and founders, including Scott Gordon, founder, and CEO of the Company, who began investing in the cannabis industry in 2014 and in 2016 co-founded and became Chairman of Egg Rock Holdings, the parent company of the Papa & Barkley family of cannabis products with related subsidiary assets in manufacturing, processing and logistics; and Dr. Orrin Devinsky, director of the Company, who is the director of the NYU Langone Comprehensive Epilepsy Center and is a Professor of Neurology, Neuroscience, Psychiatry, and Neuroscience at the NYU School of Medicine and who, since 2016 has served as the Chair of the Medical Advisory Board at Tilray, a pharmaceutical and cannabis company.