California weed supplier HERBL in talks to go public via SPAC merger - sources (updated)

Ark Solutions

12/08/2021 17:28

(Adds HERBL results forecast, background)
    By Shariq Khan and Anirban Sen
    Aug 12 (Reuters) - California weed supplier HERBL is in
talks to go public by merging with blank check company BGP
Acquisition  BGPu.NLB , at a valuation of about $600 million,
sources familiar with the matter said, one of several U.S.
cannabis companies tapping funds in anticipation of potential
federal reforms.
    Santa-Barbara, California-based HERBL, has seen its
post-merger enterprise value cut to between $450 million and
$500 million in recent weeks, from over $630 million in the
original agreement reached with BGP around June, the sources
said.
    That would translate to an equity valuation of about $600
million, down from around $800 million in the previous
agreement, they added.
    BGP, a Special Purpose Acquisition Company (SPAC) formed by
former Goldman Sachs banker Ruth Epstein, has been trying to
raise roughly $50 million from investors as part of a so-called
public investment in private equity (PIPE) round, they added.
    But it has been challenging for BGP to raise the money it
needs to fund the deal at a high valuation, the sources said, so
deal terms have been renegotiated to make them more attractive
to potential investors.
    By merging with BGP, HERBL's shares will be listed on the
NEO exchange in Canada, a country in which it does not do any
business. Companies that grow or sell marijuana in the United
States or are otherwise "plant-touching" cannot list their
stocks on premier U.S. exchanges, which has limited their access
to capital. 
    A PIPE is a funding round that typically goes hand-in-hand
with a SPAC merger and helps provide necessary financing for
such deals.
    In recent months, SPAC sponsors have found it tougher to
raise PIPEs to support deals, as the investor euphoria fueling
the SPAC boom has subsided due to poor trading performance of
several companies that went public through such deals.
    The sources cautioned it remained uncertain whether BGP will
raise the PIPE funding it is seeking or complete the deal, and
HERBL might decide to stay private. 
    HERBL declined to comment. BGP did not respond to requests
for comment. Sources declined to be identified because the
discussions are confidential.
    Rising demand during coronavirus-related lockdowns and
Democrats' promises to reform marijuana laws have raised the
drug's popularity, leading to a surge in cannabis-focused deals.
Nine SPACs have done deals worth $5.4 billion so far to take
cannabis-focused companies public.
    Marijuana remains illegal under U.S. federal law, making it
harder for weed companies there to get investor support.
    The AdvisorShares Pure U.S. cannabis ETF  MSOS.P , which
tracks shares of only the U.S. cannabis companies, is down 1%
this year, while the global cannabis stocks tracker MJ ETF
 MJ.N  is up 24.5%.
    HERBL, a distributor and supply chain services provider led
by former United Natural Foods Inc  UNFI.N  President Mike
Beaudry, took over Nevada-focused rival Blackbird in June,
expanding its client base to around 98% of retail outlets in
both states.
    Its sales grew almost 150% last year to $264 million and it
is projecting over 35% topline growth this year, according to
documents seen by Reuters. The company broke even on an adjusted
core earnings basis in 2020 and expects to report a $10 million
profit this year.

 (Reporting by Shariq Khan and Anirban Sen in Bengaluru
Editing by Denny Thomas and David Gregorio)
 ((Shariq.Khan@thomsonreuters.com; Within U.S.+1 646 223 8780,
outside U.S. +91 80 6182 2681; Twitter: @shariqrtrs;))