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• A good week for Cannabis, but Baird’s Sam Scanlan sees challenges ahead

Cannabis industry hoping reclassification recommendation eases pressure

By Bob Clair

The cannabis industry is celebrating Tuesday’s recommendation by the U.S. Justice Department to reclassify marijuana from a Schedule I drug to Schedule III, which would put it alongside less addictive substances like Tylenol with codeine, ketamine, and testosterone.

The move, which is expected to take 3-4 months to go into effect, removes the critical 280E tax penalty, which cannabis companies complain forces them to pay much higher taxes.

“Because of the 280E, we haven’t been able to take our business deductions,” said Jeremy Unruh, SVP for public and regulatory affairs for PharmaCann, a cannabis company based in Chicago.

“We’ve been taxed on our gross revenue and not our net revenue minus the deductions, so our effective tax rate was close to 70 percent. It basically meant we could never generate a profit,” Unruh said.

Sam Scanlan, who in March became Director of Global Consumer Investment Banking at Baird and previously covered cannabis as SVP of Houlihan Lokey’s Consumer, Food & Retail Group, said that while the reclassification recommendation was a very good thing for cannabis companies, the industry still has reason to be concerned.

“There’s still a lot of fundamental issues going on in the industry — there’s issues of oversupply. The reclassification will help these companies compete with the illicit market, but they’re still getting taxed on the state level.”

Despite such ongoing challenges, public markets responded favorably to this week’s decision. Shares in industry leader Tilray jumped 39 percent following the news, while Canopy Growth rose nearly 80 percent.

“This is as big a step as the Federal government has taken with cannabis in the last 75 years,” Unruh said, and it may be a sign of a shifting political environment for cannabis.

Industry observers hope this week’s decision will have positive knock-on effects for efforts to pass the SAFER Banking Act, which would allow cannabis companies increased access to traditional financial services.

In April, Senate Majority leader Chuck Schumer told a press conference that his chamber would ‘work very hard’ to get the Act passed before November this year.

• Sony Pictures Entertainment and Apollo Global Management submitted a $26 billion all-cash buyout offer for Paramount Global, whose exclusivity period with Skydance Media and RedBird Capital Partners expires this week.

• Glencore is considering a potential bid for Anglo American, which recently rejected a $39 billion takeover offer from BHP Group.

• Energy Capital Partners is in talks to acquire Atlantica Sustainable Infrastructure Plc, a UK-based owner of renewable power assets across the US, Europe, South America and Africa, at a valuation of around $7 billion including debt, per Bloomberg.

• A Brookfield and Sequoia Heritage-led group has agreed to acquire SVB Capital, the venture arm of SVB with more than $9 billion in assets under management, subject to bankruptcy court approval.

• Clearlake Capital and Francisco Partners are in talks to acquire Synopsys' (Nasdaq: SNPS) software integrity unit for more than $2 billion, per Reuters.

• Novartis has agreed to acquire Mariana Oncology, a preclinical-stage biotech developing novel radioligand therapeutics, for $1 billion upfront and up to $750 million in potential milestone payments.

• Permira acquired a majority stake in BioCatch, an Israeli biometrics fraud detection provider whose backers include Bain Capital and Maverick Ventures, at a $1.3 billion valuation.

• Johnson Controls is considering the sale of its ADT alarms business at a valuation of up to $1 billion, per Reuters.

• Carlisle Companies (NYSE: CSL) acquired MTL Holdings, a provider of prefabricated perimeter edge metal systems, from GreyLion Partners for $410 million.

• Hologic (NASDAQ: HOLX) agreed to acquire Endomag, a developer of breast cancer surgery technologies, for around $310 million.

• Saw Mill Capital has sold Wolf-Gordon, a manufacturer of specialty supplier wallcoverings, to Charger Investment Partners.

• Avel eCare, backed by Aquiline Capital Partners, acquired Horizon Virtual, a Minnesota-based virtual hospitalist services provider.

• Sycamore Partners is among firms that have expressed interest in taking department store chain Nordstrom private, per Reuters.

• Tailwind Capital invested in GrayMatter, a provider of industrial automation solutions.

• TruFood Manufacturing, a Mubadala portfolio company, acquired Bar Bakers, a nutritional snacks maker.

• Danone agreed to acquire Functional Formularies, a provider of organic, shelf-stable tube feeding formulas, from Swander Pace Capital.

• Legence, a Blackstone portfolio company, acquired Corporate Sustainability Strategies, a commercial real estate sustainability consulting firm.

• Stantec (NYSE: STN) acquired Hydrock, an engineering design company with 22 UK locations.

• Solera, a Vista Equity Partners-backed provider of automotive risk management and asset protection software, confidentially filed for IPO, per Bloomberg.

• Springer Nature, a BC Partners-backed academic publishing business, has revived previously shelved 2020 IPO plans and appears likely to hire Morgan Stanley, JPMorgan, and Deutsche Bank to advise, per Reuters.

Tech, Vertical SaaS, & Misc. Enterprise

• CoreWeave, an AI infrastructure provider, raised $1.1 billion in Series C funding at a $19 billion valuation. Coatue led, with participation from existing backers Magnetar, Altimeter Capital, Fidelity, and Lykos Capital Management.

• LayerX, a cybersecurity platform for browsers, raised $50 million in new funding. Glilot+ led the Series A round, with participation from Dell Technologies Capital.

• Traceable AI, a provider of API security solutions, raised $30 million in new funding from Citi Ventures, IVP, Geodesic Capital, Sorenson Capital, and Unusual Ventures.

• Lamini, an enterprise-focused generative AI platform, raised $25 million in Series A funding led by Amplify Partners, with participation from First Round Capital, AMD Ventures, and AngelList.

• Aikido, a developer-friendly security platform, raised $17 million in Series A funding led by Singular, with participation from Notion Capital and Connect Ventures.

• DataGran, a developer of data privacy compliance solutions, raised $12 million in Series A funding led by Tomahawk Live.

• Apex, an AI cybersecurity company, raised $7 million in seed funding co-led by Sequoia Capital and Index Ventures.

• Danti, an AI-powered search engine for Earth data, raised $5 million in seed funding led by Shield Capital, with participation from Tech Square Ventures, Humba Ventures, SpaceVC, and Radius Capital.

Fintech

• Altruist, a commission-free financial services platform, raised $169 million in Series E funding led by Iconiq Growth, with participation from Granite Capital Management, Adams Street Partners, and Sound Ventures.

• Agora, a governance platform for decentralized structures, raised $5 million in seed funding led by Haun Ventures, with participation from Coinbase Ventures, Seed Club, and Consensys.

Healthcare

• Innovaccer, a provider of healthcare data management solutions, is in talks to raise up to $250 million in new funding at a valuation between $2.5 - $3 billion, per TechCrunch.

• Transcarent, a provider of digital care solutions for self-funded employers, raised $126 million in Series D funding. General Catalyst and 7wireVentures co-led, with participation from Geodesic Capital, Memorial Hermann Health System, Threshold, Kinnevik, Ally Bridge, Human Capital, Merck GHI, and Leaps.

• Karius, a blood testing diagnostics startup, raised $100 million in Series C funding co-led by Khosla Ventures, 5AM Ventures and Gilde Healthcare, with participation from SoftBank, General Catalyst, HBM Healthcare Investments, Blue Water Life Sciences, Innovation Endeavors, and Waycross Ventures.

• Livara Health, a San Diego-based provider of musculoskeletal treatment solutions, raised $15 million in Series B funding led by A1 Health Ventures, with participation from Polaris Partners, Providence Ventures, and Martin Ventures.

 Industrials, Greentech, & Other

• Stargate Hydrogen, a developer of green hydrogen solutions, raised €42 million in seed funding led by UG Investments and IPCEI.

• HighVista Strategies raised $675 million for its 10th public-private fund.

• Centana Growth Partners is raising $475 million for its third growth fund.

• Latticework raised $345 million for its second healthcare buyout fund.

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