Assuming SSPK’s target is a solid one, we would expect at least 30% upside from the current level for SSPKW. If SSPK picks a cannabis company as its merger target, SSPKW could potentially converge with MJ as the price of the merged company would be driven more by cannabis industry fundamentals. SSPK warrant (SSPKW) in the meantime was decoupled from the sector rally (see chart below).
The market reaction to these developments, however, was upbeat as evidenced by the ETFMG Alternative Harvest ETF, which was up 30% since the election. One key overhang still remains, though - if Republicans are still in control of the Senate, it will become unlikely for the US to federally legalize cannabis. The newly elected Biden/Harris administration is widely expected to support decriminalizing cannabis, broadening access to medical cannabis, and not interfering in the states’ decisions on cannabis policies.
Five more states voted to legalize cannabis, i.e., recreational use in New Jersey, South Dakota, Montana, and Arizona, and medical use in Mississippi. After the presidential election early this month, there were indeed major positive development: In our writeup on June 30 th, 2020 (" 2 Cannabis SPACs with Potentially Significant Upsides In 7 Months"), we expressed a bullish view on cannabis SPACs based on their price levels and the improving regulatory and legal environment for the cannabis industry. He could immediately raise Silver Spike II and get another two years to search for a cannabis target, during which there could be more clarity on the regulatory and legal environment on the cannabis industry. Would he be leaning more toward a non-cannabis deal? It is not a bad choice for a first time SPAC sponsor if he could generate a good return by merging SSPK with a non-cannabis target and set a solid start for his SPAC track record. His background actually makes us wonder how he would approach the cannabis and non-cannabis decision. SSPK CEO Scott Gordon has extensive deal-making and capital market experience from working with several high profile Wall Street firms before shifting his focus to managing a cannabis SPAC. Like many 2019 vintage deals, SSPK has a ½ warrant structure, i.e., you will need to own two warrants to get one whole underlying common share upon warrant exercising. The SPAC has an 18-month duration and will have until Februto complete its business combination. SSPK is a cannabis focused SPAC that completed the initial public offering in August 2019 and had $254 million in its trust account as of September 30, 2020. If SSPK chooses to pivot to a non-cannabis target in the “hot” sectors, the potential upsides for SSPKW could be 2x-3x. Judging from the post-election price trajectory of the ETFMG Alternative Harvest ETF ( MJ), it is reasonable to assume 30-50% upside for SSPKW after a deal announcement. If SSPK continues to focus on a cannabis target, the industry fundamentals are expected to improve further going forward after the recent election. Given the recent developments, the current price level represents a good entry point with a great risk-reward profile. Similar to other cannabis focused SPACs, the warrants of SSPK (SSPKW) traded at a relatively low level price range due to legal and regulatory overhang (see chart below). The company will have to make a deal announcement between now and then. (SSPK) (SSPKU) to decide whether to merge with a cannabis or non-cannabis target since its liquidation deadline is only three months away on February 12, 2021. The clock is ticking for cannabis focused SPAC Silver Spike Acquisition Corp.
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