$1.9B SPAC Deal Collapses

Remember when SPACS were all the rage when everybody was locked down and financial types could further explore magic realism…

MJ Biz have published a big piece that’s well worth a read and I should imagine should have other cannabis SPAC dealmakers either rushing for the exit, lawyers or both!

 

In February 2021, chewing gum heir William “Beau” Wrigley Jr. and his Parallel marijuana company seemed on the verge of completing a $1.9 billion deal to go public through a special purpose acquisition company (SPAC) backed by music mogul Scooter Braun.

The blockbuster transaction – combining multistate operator Parallel and Braun’s Ceres Acquisition Corp. – was promoted in Parallel’s presentation to investors as bringing together two “industry titans.”

But the merger collapsed without explanation last September, and, soon after, Wrigley stepped down as CEO.

Now, Wrigley, Atlanta-based Parallel and some of its top executives face litigation – including a lawsuit in U.S. District Court in southern Florida by investors alleging securities fraud, mismanagement and misrepresentation.

Among other things, the three disgruntled investment groups accuse Wrigley of deliberately letting the SPAC deal “die on the vine” when it was clear the merged company would fail to live up to expectations.

They also accuse Wrigley of spending their investment on servicing debt rather than on company operations.

The plaintiffs are seeking a minimum of $25 million in damages plus expenses.

But in a recent motion to dismiss, Parallel and other defendants reject the allegations, saying the case doesn’t involve fraud but rather “disappointed investors.”

The collapse of the Ceres-Parallel deal and the ensuing fallout underscore the overly ambitious expansion plans of some cannabis companies as well as the boom and bust of SPACs.

In Parallel’s case, court filings, investor presentations and other disclosures reflect a company that trumpeted lofty ambitions but struggled under the weight of massive debt and unrealized growth projections.

For example:

  • In August 2021, Parallel – which also does business in some states as Surterra Wellness – projected its 2022 revenue would be $618 million. But by January of this year, the company had slashed that projection by 40%, to $362 million.
  • Parallel struggled to have enough cash to avoid defaulting on $350 million in debt.
  • Even before the SPAC deal was announced, Parallel had posted net losses of $263 million in 2019 and $140 million in 2020.

After the Scooter Braun deal unraveled, court filings indicate that Parallel told the investors it was pursuing a sale of the company that would be completed by mid-2022. That also hasn’t materialized.

Parallel declined to comment to MJBizDaily about the litigation, its current financial condition and whether the company is for sale.

Despite its financial challenges, industry experts see Parallel as being a potentially desirable acquisition target.

When the SPAC transaction was announced in February 2021, Parallel had long held the No. 2 sales position in Florida’s mammoth medical marijuana market, behind Florida-based MSO Trulieve Cannabis.

The company also boasted operations or licenses in Massachusetts, Nevada, Pennsylvania and Texas.

“Parallel has an attractive footprint which includes the highly coveted Florida market,” Matt Karnes, founder of New York-based Green Wave Advisors, told MJBizDaily via email.

But its struggle to service its debts “raises concern around its liquidity and, perhaps, even its ability to continue as an ongoing concern,” Karnes added.

It’s difficult to know exactly the current status of Parallel’s financial health and its debt payments because the company is privately held.

Lofty projections

Circle back to February 2021, when Wrigley struck the mammoth deal with Braun to take Parallel public through a transaction that valued the company at nearly $2 billion.

Under the terms of the transaction, Braun’s Ceres would buy Wrigley’s Parallel and then Parallel would take Ceres’ stock listing on Canada’s NEO Exchange.

The combined public company was expected to have a $430 million cash balance at closing that included $120 million held by Ceres, according to a news release announcing the deal.

Read more

https://mjbizdaily.com/marijuana-mso-parallel-faces-financial-hurdles-after-1-9-billion-spac-deal-collapses/

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