But less than six months after signing that deal, Parallel’s underlying financial issues began to surface.
In September 2021, the plan to go public via the SPAC deal imploded. Ceres Acquisition Corp. declined to comment for this story, but Reuters reported at the time that the parties have decided by mutual agreement to abandon the merger and that SPAC had lost confidence in Parallel’s financial projections on which it had relied to close the deal.
Difficulties accessing capital due to federal illegality have helped make SPACs a popular way for cannabis companies to access public markets in recent years, thanks to lower barriers than a traditional IPO. . SPACs – also known as “blank check corporations” – entice investors for the express purpose of acquiring another company and taking it public. Generally, if SPAC has not successfully acquired its acquisition within two years, investors are entitled to their money back.
But they have caught the attention of regulators and federal lawmakers, who have expressed concern that many of the deals are based on questionable financial numbers. The SEC has proposed rules it would impose greater disclosure requirements for SPAC transactions, bringing them in line with more traditional IPOs.
The collapse of the SPAC deal left Wrigley and other senior company officials scrambling to raise money to pay off debts and prevent the company from collapsing, according to an investor. lawsuit filed in the U.S. District Court for the Southern District of Florida in March.
The ultimate goal: to make the company attractive enough to attract a new buyer in the first half of 2022, according to the complaint.
These plaintiffs allege they were persuaded to provide $25 million on the understanding that the company would collect an equal sum from other parties, including Wrigley himself.
Parallel officials told them that “cannabis industry players were turning on their phones and queuing, unsolicited, to buy the company,” according to the complaint.
But as soon as they dispatched the funds in September 2021, according to the complaint, it became clear that Parallel was in a much worse financial situation than they had been told. The complaint alleges the following details: In August, the company had forecast revenue of $618 million for 2022. But by October, that figure had fallen to $492 million. Three months later, projected revenue for 2022 had fallen to $362 million. This group of investors also claims to have discovered shortly after committing the $25 million that Parallel was defaulting on more than $300 million in debt.
“His projections were an inflated fantasy,” the complaint reads. “We had to [$25 million investment] to make Ponzi-like payments to other investors.
Lawyers for the company declined to comment on the allegations.
It’s common to see outrageous projections in cannabis industry investment decks, in part because the pace of policy change is so unpredictable, said Matt Karnes, founder of analytics firm Greenwave Advisors. Cannabis-focused finance. Lucrative state markets like New York may seem close to legalizing marijuana, but end up taking years to do so. And even after a state legalizes weed, it often takes longer than expected for markets to be up and running.
Over the past nine months, many major cannabis companies have lowered their revenue targets or missed their projections, Karnes said. The parallel is “not out of place in this regard, it’s just that the magnitude is deeper”.
Kaufman, the New York cannabis lawyer, further points out that it is not necessarily unusual for companies to revise their financial projections downward after securing funding or to raise funds that would help repay investors. previous ones.
“It’s business. You see that in the tech world all the time,” Kaufman said. “It’s going to be very difficult to say at this stage of the proceedings” whether this was a Ponzi scheme, since Parallel had a real business.
Cherished Deals and Insider Paydays
A second investor lawsuit was filed in the New York State Supreme Court in March. This group of aggrieved investors includes John Morgan, a prominent Democratic lawyer and donor known to the Florida cannabis community as “Pot Daddy.” This nickname comes from the fact that he financed the 2016 medical marijuana legalization campaign and funded a lawsuit that opened up the market to allow cannabis to flourish. Morgan did not respond to requests for comment for this story.
It’s likely that Morgan isn’t the only prominent individual among disgruntled investors. The other plaintiffs in the lawsuit are investment vehicles registered in the British Virgin Islands and Cyprus, known to be international tax havens with strong anonymity protections.