Subversive Capital Acquisition Corp., already the largest investor of its kind in the cannabis industry, has ramped up its effort to become a leading player in the California cannabis market.
A Special Purpose Acquisition Company (SPAC), Subversive recently purchased Caliva and Left Coast Ventures – two of California’s largest operators – and teamed with entertainment mogul Jay-Z to form TPCO Holding Corp., or The Parent Company. The new vertically-integrated business is widely expected to become among the largest cannabis operators in the state, revenue-wise, according to industry analysts. Subversive Capital anticipates that Caliva and Left Coast Ventures will have combined revenues of $180M this year and more than $330M in 2021.
Under the agreement, set to close in January, Subversive Capital will acquire Caliva for $282.9M and Left Coast Ventures for $142.2M. Jay-Z, who is set to be compensated with about $50M worth of the new company’s stock, will become The Parent Company’s chief visionary officer and lead its social equity programs. Plus, Subversive has a healthy balance sheet of roughly $575M that it will take into the new venture.
Talking to WeedWeek, Subversive CEO Michael Auerbach explains the game plan, why the company chose California, and how Jay-Z will be more than just a celebrity face:
This interview has been edited for length and clarity.
WeedWeek: What’s the significance of this deal?
Michael Auerbach: We’re creating something that will be hard to replicate. And with a $575M balance sheet to play with in California, we’re going to dominate and consolidate the market. Come January, we’re going to be on a consolidation spree and it will be hard for any smaller player to compete with us. None of the traditional MSOs [multi-state operators] have a large footprint in the state, so it’s ripe for consolidation. $575M in cash is five times the amount of cash as the top MSOs [in California] combined. It’s going to be very difficult to catch us.
WW: What made this opportunity attractive?
Auerbach: California is the most important and relevant cannabis economy on the planet. We anticipate the end of prohibition occurring in the next 12 to 24 months, so California is really the tip of the spear for an end-of-prohibition economy. … Not only is it the largest state in the union, it is by far the largest cannabis economy in the world.
So to deploy $575M onto the balance sheet of a company, we looked to California. We looked to roll up two of the best-in-class operators that have synergies between them that could save costs, expand margins, [and] expand footprint so we could have a considerable or significant market share within the state out of the gate, and then the balance sheet to consolidate and dominate.
WW: What is Jay-Z’s role in the new company?
Auerbach: He’s involved in every aspect of this company; even naming it ‘The Parent Company’ was his brainchild. So this is not an ambassadorial role where he’s been asked to say a good thing about The Parent Company a couple times a year. He will be fully integrated into the fabric of the company and the CEO of Roc Nation [Desiree Perez], his entertainment powerhouse, is joining our board of directors.
WW: Are you already thinking about expanding The Parent Company beyond the Golden State?
Auerbach: We’re definitely going to stick around in California to dominate that market first, but there are some markets we’re interested in from a cultural fit, given the relationship with Jay-Z and just, generally, our house of brands strategy. So we’re looking at New York quite seriously, as we believe that state will go adult-use within the next nine to 12 months.
WW: How do you think this deal could impact the larger industry?
Auerbach: We need a professionalized industry to get federal policy to change, so that the federal government can look and say, ‘This is how you successfully remove the criminality and the illicit market.’ They’ll look at a company like ours, that’s actively trying to rectify the harms caused by the War on Drugs by taking up to $10M at the start to invest in Black-owned businesses and then committing 2% of our net revenue every year to continue to invest in businesses run by people of color.
We believe the end of prohibition is inevitable. At The Parent Company, we believe we’ll have the ability to even accelerate the end of prohibition, given what we plan to do in the space and how we plan to structure our company, as both a for-profit entity … but also from a social justice perspective, in terms of putting our money where our mouth is to begin to rectify the wrongs suffered by people of color in this country.
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