💰Subversive Capital Acquisition Corp. SPAC: Jay-Z / Roc Nation + Caliva + Left Coast Ventures

Forms the largest vertically-integrated Cannabis platform in California

Nov 25, 2020

There’s a lot of momentum for publicly traded Cannabis companies with MSOs reporting strong earnings across the board these past two weeks (and the DOW passing 30,000 today!). It’s hard to time a go public event, but on the heels of a post-election / COVID-19 vaccine market rally and strong Cannabis industry earnings, I think the SPAC announcement comes at an ideal time. Exciting times ahead as we (my Company is involved if you didn’t realize already 😁) continue building on top of the combined LCV + Caliva footprint in California with help from Jay-Z / Roc Nation and a strong balance sheet (up to $562M based on redemptions) thanks to Subversive. We’ll be aggressive on the M&A front – building out our retail and delivery footprint, going deeper as a vertically integrated company, and working with a much larger budget to build our brands.

Highlights

Newly formed vertically-integrated cannabis company to be named TPCO Holding Corp. (The Parent Company)
Class A Units currently trade on the NEO under the symbol “SVC.A.U” and on the OTCQX under the symbol “SBVCF”
- Today’s Volume (11/24): SVC.A.U (3.8M) // SBVCF (1.6M)
$36.5M PIPE from existing and new shareholders (Fireman Capital Partners, Tuatara Capital, Subversive Capital, Rihanna, Yo Gotti, and Meek Mill) provides sufficient cash to satisfy closing conditions
Transaction expected to close in January 2021
Shawn “JAY-Z” Carter will join The Parent Company as Chief Visionary Officer to guide brand strategy and The Parent Company Social Equity Ventures, a corporate venture fund investing in Black-owned and minority-owned cannabis businesses

Rationale

Attractive Valuation – Merger of two top California operators, Caliva and Left Coast Ventures, will create a fully vertically integrated platform with cultivation, manufacturing, brands, retail and delivery. 1.8x EV/2021E Revenue & 1.0x EV/2022E Revenue.

Progressive Operational Platform – Own its supply chain, allowing the company to leverage scale and profitably produce and distribute a broad portfolio of cannabis products for every consumer segment
Omnichannel Platform – express or scheduled delivery, in-store or curbside pick-up, all through a single user-centric e-commerce platform, Caliva.com

Exclusive Brand Partnerships and Leading Cultural Influence – Brand strategy and marketing playbook led by Shawn “JAY-Z” Carter and Roc Nation, leveraging unparalleled cultural influence of leading artists and entertainers to build the most valuable and scalable brand IP in cannabis

Unrivaled Consumer Reach– The Parent Company is expected to reach 75% of consumers in the state by the end of 2021 and ~90% by the end of 2022

Strong Balance Sheet – SCAC currently holds ~$575M in cash-in-trust, which would make TPCO one of the most well-capitalized cannabis companies in the United States, assuming no redemptions. TPCO expects to pursue an aggressive M&A strategy to accelerate growth, market share gains, and profitability

Industry-Defining Social Impact – $10M initial target for TPCO Social Equity Ventures with and an annual contribution of at least 2% of its net income to invest in minority-owned and Black-owned cannabis businesses

Experienced Management Team – led by an experienced executive team with deep knowledge of the combined companies, the cannabis industry, CPG, technology and financial industries

Transactions to form TPCO

Caliva: ~$282.9M paid in SCAC Common Shares. Additional consideration post-closing: 1) up to ~17.4M additional SCAC Common Shares based on VWAP SCAC Common Shares reaching $13.00/$17.00/$21.00 within three years of closing, 2) up to ~3.9M additional SCAC Common Shares (Caliva Earnout Shares) if the aggregate consolidated cash of SCAC, at closing, net of short term indebtedness, is less than $225.0M, in which case a proportionate number of Caliva Earnout Shares would become payable based on whether TPCO raises cash to cover such shortfall in the 12 months following closing and whether the weighted average price per share for any equity securities used to raise such cash proceeds is below $10.00 per share

Left Coast Ventures: ~$142.2M less the Sisu Consideration (as defined below) paid in SCAC Common Shares. SCAC to repay $15.0M in promissory notes of LCV. Additional consideration: 1) up to ~3.9M additional SCAC Common Shares based on VWAP of SCAC Common Shares reaching $13.00/$17.00/$21.00 within three years of closing, 2) Concurrently, Left Coast Ventures (LCV) will acquire Sisu Extraction for ~$76.3M ($15.0M cash, $61.3M SCAC Common Shares)

OG Enterprises: Caliva will acquire the remaining 50% interest in OG Enterprises (50% owned by Caliva and 50% owned by an affiliate of Jay-Z). Jay-Z will receive 5.0M SCAC Common Shares with an additional 1.0M SCAC Common Shares post-closing in the event the VWAP of SCAC Common Shares reaches $13.00/$17.00/$21.00 within three years of closing

Roc Nation: “Official Cannabis Partner” of TPOC, providing company with special access and rights to Roc Nation’s roster of artists & athletes and Roc Nation will promote The Parent Company’s brand portfolio and provide various services. TPOC will pay to SC Branding, LLC in SCAC Common Shares (i) $25M at commencement; (ii) $7.5M in Year 2 ; and (iii) $7.5M in Year 3.

Sponsor: Subversive Capital Sponsor LLC (Sponsor) has agreed to potentially forfeit up to ~5.7M SCAC Common Shares, whereby one-third of such SCAC Common Shares will cease to be subject to forfeiture if the VWAP of SCAC Common Shares reaches $13.00, $17.00 and $21.00, respectively, within three years of closing of the Transaction. The Sponsor has also agreed to forfeit to SCAC (i) ~0.6M SCAC Common Shares on closing of the Transaction, and (ii) a number of SCAC Common Shares equal to any Caliva Earnout Shares issued to the Caliva shareholders.