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Restructur Advisor's Cannabis Sector SPAC Tracker

Smart money leads, not follows. Smart money buys low, not high. Smart money looks for opportunity where no one else is looking. Smart money invests, rarely trades. Smart money makes money when the market goes up and when it goes down. Smart money keeps cash on hand to buy things others have to sell when they run out of cash. Smart money invests in long-term projections and is capable of ignoring short-term cycles.

At a time when so many people have turned sour on the cannabis industry, some teams which made money when the market was good are amassing investment commitments with any eye to looking for smart investments in the cannabis sector which they know is currently going through a massive valuation crunch even though it is poised for significant long-term global growth.

In fact, in the past few months, in North America alone, large investors have committed more than $2.6 billion to fund acquisitions and other transactions in the cannabis sector over the next 12-24 months. This is money not intended to be invested as growth capital for operating companies; this is money looking to create significant value through one or more transactions, many of which will involve distressed (or significantly under-valued) assets and/or companies. Whether or not this money is ‘smart’ will largely be a function of whether the management teams (not necessarily the investors) who made money in a bull run in the sector can put together money-making deals in a bear market.

This money been committed to several Special Purpose Acquisition Corporations ("SPAC") which Restructur Advisors is tracking and engaging with in the cannabis sector restructuring work we do and follow. Here’s a list:

Fund Name Symbol Size ($M)*

Subversive Real Estate Acquisition REIT LP NEO:SVX.UN $225

Greenrose Acquisition Corp. NASDAQ:GNRSU $150

Stable Road Acquisition Corp. NASDAQ:SRAC $172.5

Merida Merger Corp. I NASDAQ:MCMJ / NEO: MMK $120

Silver Spike Acquisition Corp. NASDAQ:SSPK $250

Ceres Acquisition Corp. NEO (listing pending) $120

Mercer Park Brand Acquisition Corp NEO:BRND $402.5

Subversive Capital Acquisition Corp NEO:SVC $575

Bespoke Capital Acquisition Corp. TSX.V;BC.V $350

Ceres Acquisition Corp. NEO:CERE.UN $120

Collective Growth Corp NASDAQ:CGROU $150

TOTAL: $2,635

* million of Canadian Dollars

Now here's a little primer on what this means.

SPACs are publicly-traded companies set up to find, put together, and close on acquisitions, or other transactions, which are typically focused on (but not limited to) a particular sector. The way a SPAC is structured to provide a significant return to investors is through transactions which creates significant value. This is usually only accomplished if the acquisition or other transaction - let's call it the 'deal' - involves buying something cheap, perhaps putting it together with something more valuable, and selling it for a higher price. This is what hedge funds or distressed asset funds do but often they create value by being more operationally focused - this is where a SPAC is unique. SPACs are not interested in operating companies over time to create value. Because the value creation is in the deal itself, the deal must involve taking assets or companies which are undervalued - or which have trapped value - and making them more valuable in a single or quick series of transactions.

Also, a SPAC is not a fund to be invested at the discretion of management; it is a non-binding commitment of funds which can be released for a proposed transaction at the discretion of the investors. Sponsors of a SPAC set up a corporation, and, working with an underwriter, file a prospectus which sets the corporation's focus, the type/size of transaction they are looking to execute (the "Qualifying Transaction"), the time period they have to complete the Qualifying Transaction, the price and terms of the 'raise', etc. We put 'raise' in quotations because even when the final prospectus has been accepted by the securities commission and the SPAC begins trading, the money has not been transferred to the SPAC. Investors have simply committed a fixed sum of money to a deal when an acceptable Qualifying Transaction has been found, put together, proposed and approved. Which leads to another unique feature of SPACs.

The investors, not the SPAC management or directors, decide, in their discretion, whether or not to approve a proposed deal even if it is a Qualifying Transaction which complies with all the SPAC's terms. Even though they have committed funds, the investors reserve the option to decide if there is a better use for their money when presented with a vote to approve or reject the deal. Why do investors even bother committing this money in the first place? Because they get paid a reasonable return for doing so by way of a fixed interest rate for parking their cash in the 'commitment'. Meanwhile, management is also taking a slice by getting paid to identify and put together a deal. Additionally, if a deal does get approved, there are lots of back-loaded success fees for the SPAC ‘insiders’ which sometimes cramps the deal metrics, return, and incentives for those involved in companies which are the target of the deal.

All of this might seem to suggest that SPAC investors (and maybe even management) are not really motivated in closing a Qualifying Transaction. That's generally not true. While the SPAC structure and terms create desirable risk-minimization and fixed-return benefits for investors, the real money is made only if a deal is done.

SPACs are typically created to focus on sectors expected to go through considerable change - growth, downturn, consolidation, etc. There is no doubt that smart money is betting the cannabis sector is a perfect candidate for SPAC investment; Restructur Advisors is positioned to help them find Qualifying Transactions of value.

Restructur Advisors will continue to monitor and report on the creation and activity of cannabis-oriented SPACs as we work with investors to identify distressed assets and companies which have real underlying value and will be an important part of the sector’s future growth.

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Received an email from Maxim Group today saying that that the markets for SPACs should remain strong in the midst of the record market downdraft and uncertainty. They provided the following commentary:

"...since SPACs are principal protected, they hold their value extremely well and become a natural source of funds for liquidity seeking investors. It would not be surprising if investors gave pause to funding new deals while this dynamic sorts itself and aftermarket prices improve, which should occur as the current liquidity panic subsides. Given the nature of the SPAC product as a low risk proposition, ultimately there should be demand even if the markets remain challenging.

For the 70+ existing SPACs, representing over $15B in capital, executing a…

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