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Silver Spike Acquisition (SSPK.Q) helps WHM Holding, owner of WeedMaps, go public

weedmaps
12/10/2020

I was now years old when I learned about WeedMaps.

You would think someone who’s been writing about the cannabis industry for the better part of three years would know about WeedMaps, but you’d be wrong and here we are. Granted, I’ve never been much of a buyer. I’ll contribute $5 or $10 to get a gram or two from one of our friend’s uncles, but as for actually showing up and making the deal myself? Pass. The prospect of being able to go on the internet and have a database from which I can search and find weed was remote and laughable—the realm of stoner science fiction. But we’ve seen some peculiar and some might say miraculous changes in the past five years, like a legal market.

Now WeedMaps’ parent company WM Holding Company (WHM) is going to be a public company traded on the NASDAQ courtesy of Silver Spike Acquisition (SSPK.Q). The combined company will be led by Chris Beals, the CEO of WMH.

“We passionately believe in the power of cannabis and the importance of enabling safe, legal access to cannabis for consumers worldwide. With this merger, we will be able to continue scaling the Weedmaps marketplace in the U.S. and internationally in service of our users while expanding the functionality of our WM Business SaaS offerings in service of our clients. Our partnership with Silver Spike will provide us a stronger platform to advance our mission to advocate for legalization, social equity and licensing in many jurisdictions while providing cannabis businesses with the tools needed to succeed in a highly complex world of regulations,” said Beals.

WHM has been around since 2008. They operate Weedmaps, which is an online listings marketplace for cannabis consumers and businesses, and WM Business, which offers a software-as-a-service subscription to cannabis retailers and brands. They’ve also grown their revenue stream at a compound annual growth rate (CAGR) of 40% over the past five years, and is closing in on $160 million in revenue, and $35 EBITDA for 2020.

Not bad.

The timing on this one is decent as well, because the United States cannabis market is expected to double in the next five years as prohibition falls like dominos through the states, giving adults legal access to cannabis. For right now, though, cannabis users in the U.S. are still a minuscule segment of the population, and retail density isn’t the best across the majority of states that have legalized cannabis.

Add to that, disparate and byzantine regulations across cities and counties in the regulated states, and there’s more than enough barriers for the NIMBY crowd to latch onto to keep cannabis out of their neighbourhood. It doesn’t help that cannabis itself is a complex and non-shelf stable consumer product, either, so having an online resource like Weedmaps is great for giving consumers the ability to actually find the dispensaries and companies that have managed to navigate the regulatory morass and go into business.

Weedmaps has gotten into some hot water in Canada for showing both legal and illegal dispensaries, which might be counterproductive to any aims of the widespread acceptance up here. Several Canadian cannabis retailers have asked the Royal Canadian Mounted Police to inspect Weedmaps and get to work on stopping illegal cannabis operators on the platform, including High Tide (HITI.C) and Superette, which said that more work needed to be done to shut down illegal dispensaries and services across Canada.

“In view of Weedmaps’ unwillingness to delist illicit market services in Canada and to stop profiting from the proceeds of crimes committed in Canada, we ask that you direct your appropriate investigative units to immediately look into what enforcement action can be taken against Weedmaps’ Canadian operations,” the letter states.

This company joins a list of so-called legacy outfits that governments have largely ignored thus far—likely giving them enough time to clean up their act before they have to step in and do it for them. The math doesn’t check out. They’ve been around doing business for twelve 12 years, having become the destination for cannabis consumers with over 10 million monthly active users and over 18,000 business listings across every U.S. State, the District of Columbia, Puerto Rico, and apparently Canada, and cannabis hasn’t been legal that long.

The benefits of a legacy company are that they already have the know-how and the supply and distribution angles down to their businesses, and if they get enough time to make the transition, they’ll be competitive.

Going through the website and having a look at some of their peripheral information (because, you know, I may want to use it later), their website and mobile apps give information about retailers, brands and product availability. I learned that there’s a dispensary decently close to me, and no longer have to walk an extra fifteen minutes to get a refill for my wife’s weed pen. But I also learned I can order-ahead for pickup or delivery, in case you’re in quarantine. Which I am.

That’s stupidly helpful.

The company’s SaaS subscription is cloud-based and offers cannabis retailers with an end-to-end operating system to access users, grow sales and scale their business. For investors, Weedmaps expects to get a bump in gross proceeds of up to $575 million on the deal, partly from proceeds previously raised by Silver Spike, but also from a private investment in public equity, or PIPE, transaction, of $325 million. Investors include funds from the Federated Hermes Kaufmann Funds, Senvest Management and AFV Partners.

—Joseph Morton

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