SPACs are financing the industry's growth The lack of institutional capital for expanding cannabis companies has led to the recent increase in Special Purpose Acquisition Company. Joe Crouthers from Ceres Group Holdings joins Dan Humiston to talk about investing in the cannabis industry and recently closing a $120 million SPAC. Produced by podCONX
SPACs are financing the industry's growth
The lack of institutional capital for expanding cannabis companies has led to the recent increase in Special Purpose Acquisition Company. Joe Crouthers from Ceres Group Holdings joins Dan Humiston to talk about investing in the cannabis industry and recently closing a $120 million SPAC.
Ceres Group Holdings
[00:00:00] Today in reason cannabis capital, we are joined by Joe Crothers, the CEO of Cirrus group holdings and Cirrus acquisition group, Joe, welcome to the show. Thanks for having me. I'm glad you could join us today for our listeners, whether you're a cannabis investor or you're a cannabis company that's raising capital.
You want to lean in because today's show has something for everybody. Joe's been in the industry for a while. From what I read, Joe, you started off in the cannabis distributions arena. But now you've got back to your first love and that's now you're a cannabis investor.
And I thought maybe to get things started, you could give us a quick snapshot of some of the companies within your investment portfolio. Sure. Yeah, that was great to be here and love your show. Thanks for having me and at Cirrus group, we've been investing in cannabis for a little over four years now.
Which doesn't sound like a long time, but it's an eternity in the legal cannabis world. Sure. So we've seen a lot of what's, where the industry has come from. [00:01:00] Cause again, it really is just. A few years old and the way that looks and feels currently. We're new to this but we're also pretty senior when it comes to the experience in the industry.
So yeah, , it would Cirrus, we have tended to focus on the consumer facing side of the industry. And a lot of that comes from. US-based investments, we have done a couple of deals abroad. The us cannabis market for us, obviously it has had.
An interesting path, I think in terms of the industry experience, getting to hear, and we were talking about this briefly before we started today and it's been a bit of a roller coaster. I do think we're getting to a place now where there's really some proven names out there.
That you can really look at in the industry and say, okay , this growth story that these cannabis companies have been telling us, yo, for all these years, there's something really behind this, right? This industry really is moving where they said it would and the companies are starting to prove that they can deliver on that, yeah. For investors. So I think it's such a great time to be. Yup. [00:02:00] Absorbing what's going on in canvas. And I do think there's a lot of opportunity there. Generally, as I was saying, we have focused at Cirrus, we focused on the consumer facing side of the industry. So we've invested in names that folks will know packs several brands in California.
We've done a coupledispensary deals. And then we'repart of a company in ERG way. That is exporting medical product. I believe now the largest medical Xsporter in the world. Over the last couple of years of, harvested 13, 14,000 pounds ofmedical product, that's been sent to Europe and Israel, Australia.
And others. So it's been a great experience and it has been a rollercoaster, but so far for us knock on wood we've had a very good run and have avoided the blow ups and those things. And now we're, feel like it's a great time to be really putting money to work.
And you mentioned Cirrus acquisition core in the intro. And that's a stack that we just recently sponsored in March. So that went public. And the Canadian exchange in March and we are actively out now searching for targets to go through that SPAC and [00:03:00] then subsequent DS back process thereby taking them public.
Yeah, maybe just you can step back on that for a second. Specs for our listeners that aren't familiar, special purpose acquisition company. Yeah. Can you , explain to us how it works and how it's different than some other investment vehicles?
Yeah. You got an acronym and that doesn't maybe sound familiar. And it sounds silly, right? You read a lot of headlines that call specs blank, check companies and tech. We heard that is what they are, but that sounds ridiculous, but a little bit, it's wow. So you're telling me, I'm just giving you a blank check to go do something with, and as an investor, you're doing that, however, it's really advantageous, I think for especially cannabis investors. And obviously SPACs are, not just being used in cannabis, it's in fact, there you see even more of them in the tech space, certainly the electronic vehicles, et cetera, you've seen a lot of spec deals, DraftKings TGI Friday's there's been numerous deals done recently via specs, so it can apply to any industry. However, I think in cannabis, It's really interesting [00:04:00] because of the fact that other ways of becoming public they're not as readily available to cannabis companies, you're back to federal illegality restriction of capital markets, those types of things.
So to me, for a cannabis company that's ready to take that step and I'll go back into. To why to look at that if you're one of those businesses in a second, but if you're ready for that move to be a public company and in cannabis , that move, unfortunately can start even earlier than it does in other places, because there aren't those large private check writers there aren't those large, private funding sources, right?
So you get away from those institutional investors, then all of a sudden you're a cannabis companyyou want to raise 20 million bucks which by other industry standards, wouldn't be a big number. However, where are you going to get, a couple of $5 million checks and cannabis.
Those can be tough to find, right? You're typically dealing with individuals, et cetera, and you start to get into those larger raise numbers and that can get tough. So I think that leap into the public markets and then the SPAC. As a sort of vehicle [00:05:00] facilitating that I think is going to be a huge story in cannabis.
It already is. But I think it will get even bigger in the next 12 months. And the way for viewers, I think to think about a stack the fundamental part of your question.Really is essentially the same idea as taking a company publicly or the traditional IPO. However, you do the steps in reverse, you get to the same place, but you do the steps a little bit in reverse.
So you take the entity, an empty entity public that, typically has a, a strong management team. With a strong operating history or a strong deal history. And the idea is you take that team and you're giving that team the ability to go out and find a great deal for you as an investor and as an investor.
What I think the really nice thing here, especially when you get into something as niche and. And growth oriented as cannabis. It's a look for the investors that, that I would call a free look, they put money in, they earn a treasury like return. And then once a team like ours comes to you and says, okay, here's the deal that we want to do.
[00:06:00] Then you can say, okay, I like that dealer. I don't like that deal. So it's a private a private sort of free look right into a potential private equity deal. And during that time you lose nothing. You earn your treasury like return and then you can decide what you want to do.
And that also provides some challenges, right? For a target company or for the spec team to know what those redemptions could look like, how excited, are our folks going to be about this deal? And that's what you hear a lot about what are the redemptions on his back going to be. And that's really where you get into what I thinkis the very core of what makes us back work, which is that it's more like an M and a transaction.
Than it is a traditional IPO where you're going out to the market and traditional IPO and saying, okay, here's what we think we're worth. What do you think we're worth? And the market goes and pushes you around, right? Your stock price around the day before you trade. And obviously right as the IPO begins trading in a stack, however, the shareholders are already there.
They already own the share. So you can go to them and bring them over the wall and have a conversation with a target alongside of those [00:07:00] current shareholders and say, is this a deal you like, and you want to stay in. And I think that gives you much more of a conversation for a lot of cannabis companies.
This would be their first big jump into public capital markets. And so I think that's where it's nice, both groups, investors, and the cannabis company operators can dip their toes in the water and do it together a little bit outside of the public eye, in an IPO transaction, you could do this behind closed doors, bringing people over the information wall to discuss with them.
What facets of this deal do you like or not like? And I think that allows you to shape the deal. To where you can control a lot of that redemption situation. Oh, you raised a, quite a bit of money when you, given the fact that the flow is so tight right now into the cannabis, I was shocked how much you raised this?
Is it 120 million? Yeah, it's 120 million us dollars. In our case, the money is sitting in trust today. And when we identify that transaction will go out to those shareholders and obviously convert those dollars into [00:08:00] that new business. That's how the process works. It was what's called backing.
Lot of acronyms, a lot of acronyms. Yeah. So what type of company are you targeting? We listed in Canada mainly for the goal of being able to then look at and target, plant touching us businesses. We think that's the most capital constraint.
It's the core of the industry, right? We could look at picks and shovels all day and that they absolutely have a place. And there's some great investments to be made there at the end of the day, the plant's gotta be grown. Manufactured packaged and sold to people. And that's where the most constraint exists today is of course, the minute you say plant touching, right?
You bring in licensing, a lot of other things, all the restrictions begin to show up. So that's where we think the best opportunity is. And again, we believe it's the core of the industry. So if you're going to give me the core of the industry and we think the best opportunity, and that seems like a no brainer to us.
That's why we are focused in the U S on either deep, single state [00:09:00] operators. Most of which are given the regulatory environments in various States are vertically integrated folks. So there are deep what I'd call an SSO, a single state operator, or or a multi-state operator.
And then the big focus for Cirrus on the end of this is on the packaged goods side, the branding side of this, because we've brought in some partners into the stack that are very well-known global ad agency because a lot of those marketing tools haven't been.
Afforded to the cannabis industry because of all the restrictions on advertising. So our goal in this back was to start this faculty foundational asset. As I was saying, a deep SSO or a, or an MSO type type of business. And then the focus going forward being, branded products the opening up these marketing channels, we brought in a couple of talent agencies that will help us open the top of the funnel and create some exposure for cannabis consumers, to those products.
, that's our angle in this back. Okay. And what's the ticker symbols.The, [00:10:00] so there are actually two of them. There's C R E dot U. That would be the shares the actual equity or the traded shares. There's also an instrument, the warrant that was originally tied to those shares.
Those warrants can be broken off of the shares originally in the IPO. And SAC. IPO's there's a share is sold to an IPO investor along with either, a half three quarters or a full warrant typically attached to that. Andyou can break those apart after 30 days.
This is where you get into the conversation. There's a lot of arbitrage traders and things out there that will buy SPAC, IPOs, break off the warrants, sell the warrants and then either redeem the shares or decide to keep the shares going forward if they like the deal, et cetera.
But it gives them sort of two instruments with which to arbitrage and play the IPO process. , so the other assemble, our warrants now are traded separately and that's CRE dot WT. Okay. So those are the two symbols related to our spec. Okay.
So , those are your [00:11:00] opportunities on the public side. Now back to Cirrus group holdings. , is there opportunities for people to still invest with that company? We closed our first vehicle.
Probably now it'd be a year and a half ago. Maybe even two years ago now. COVID I feel like I lose track of time with COVID. Yeah, I think it's, yeah, it's been a couple years now. So for the last couple of years, the answer to that question was no. However, we are raising capital for our second private vehicle, which will be a hundred million dollar.
Capital raise to do our second fund again, still focused solely on cannabis related health and wellness.And goal is similar in structure to what we did the first time. , our thesis really is that the next few years is where you're going to see that what we call the consumer effication of cannabis, where you've got a more informed consumer.
They know more about what they want. A cannabis company's job is no longer just to get product on the shelf and know that it will sell right. We think the consumer is expecting better. They're becoming more educated and [00:12:00] knowledgeable. And that all demands that, a cannabis company is it was that much stronger and better at what they do.
Is going to be a very big part of this story over the next few years. And we think that the industry is ready to, to start bifurcating the folks that can meet those demands from consumers and ones that cannot. Okay. Yeah. I agree. I think in your, you're not the first person that said that to us on the show, I'm going to have all your information in the show notes.
And including the ticker symbol. I hate to cut this off short, but we're running out of time. So if you're listening to this show right now in you're looking to invest in a publicly traded cannabis company, or you're looking to invest in a privately held cannabis company, or you're a cannabis company that's raising capital, or you're a cannabis company that wants to be acquired, . You need to take a closer look at serious group holdings and serious acquisition group. Because like I said, at the beginning of the show, these guys have something for everybody. Joel, thanks again for being on the show and let's do this again.
Thanks. Dan let's do it.