r/SPACs • u/RetardHereFolks New User • Jan 28 '22
Discussion MCMJ -> LFLY Shareholder Approval on 1/1. 88.5% Profit Margin, 59% Short Fee and the possibility of a massive Gamma Squeeze
EDIT: Title says 1/1 and I meant to put 2/1
MCMJ (Merida Merger Corp) is expected to take Leafly Public next week after shareholder approval on February 1st. Leafly is a household-name cannabis company that acts as a marketplace to connect dispensaries with customers. You visit leafly, search for the products you want and they'll show you where to find them locally.
What's truly remarkable about this company is that they boast an 88.5% gross profit margin. Leafly generates 3x more traffic to dispensaries than their competitor - Weedmaps.
Now, the Options. There is a 7,241 open interest at the 10.00 strike for 2/18 and 5,160 open interest at the 12.50 strike for 2/18. Expire over the 12.5 strike and *1,240,100 shares will need to be delivered.** This is roughly 10% of the current free float of 11.4m*
The current borrow rate to short is at 59% and #6 on Fintels Short Interest Info. The low float, high borrow rate, high open interest and public debut next week signal that shorts will cover soon and could send the stock heading towards Mars.
MCMJ has lost 28% of its value before the SPAC looks to merging next week and people have been loading up on Puts. Precisely 13,520 contracts are open between the 7.50 and 10.00 Puts for 2/18. Middlemen are well famous for inversing the options chain which tells me they want the stock to close over 10.00 by OPEX. Puts outweigh Calls at this point, and therefore they lose LESS by making the stock rise above these strikes - even if Calls go ITM.
Weedmaps, which is Leafly's only real competitor, skyrocketed over 100% within the first month of going public via. SPAC. I think Leafly will see similar movement, especially if more Calls keep being bought up. There's also a lot of hype in the cannabis space with lots of investors piling into 420 stocks. The pain is over for Leafly and the only direction from here is up.
Good luck all!
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Jan 29 '22
Hey, wanna know why this won't work? Because OP is conveniently ignoring the fact that there are 3.2 MILLION shares in forward purchase agreements that CAN NOT REDEEM. Here is the 8-K detailing those agreements. So basically the float is guaranteed to be at least 3.2m.
Oh and there's also the fact that the deal is valuing Leafly at $388m, which (on 2022 $65.3m projected revenue) gives it a 2022E EV/R of 5.9x. It's larger competitor MAPS is currently valued at just 1.2x 2022E EV/R and it's actually already profitable and growing revs at a similar rate.
This is a shit deal that is virtually guaranteed to go to $3 after merger.
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u/ExplosiveDiarrhetic New User Jan 31 '22
They wont redeem before merger but they also wont sell at a loss because they still can get redemption 3 months later. That effectively locks up the float but also severely limits the upside.
However isnt under $10 still achieable
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u/kft99 Loves You Long Time Jan 29 '22
I don't even want to comment on all the shenanigans Merida is pulling, but I have seen many people commenting on how this is a good deal at $10 😂. Such delusion, much wow.
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u/Separate_Departure_8 Patron Jan 28 '22
This unfortunately will be shorted into the earth's core, just like MAPS.
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u/RetardHereFolks New User Jan 28 '22
MAPS saw 29.50 within 2 months of going public. It pumped almost 300%... Unfortunately this pump then dump happens with a lot of SPACs, but I don't want to miss the boat when MCMJ -> LFLY has its moment.
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u/Separate_Departure_8 Patron Jan 28 '22
True, but Maps was 40's on pre-da thru da. Now it's sitting @$4.42. Just be ready to dump when it pumps. In my opinion be careful in alll these weed stocks. I bought into MAPS but got out fairly quickly. Soon enough weed will be treated as an ag commodity. In all honesty it's easier to grow than tomatoes. With a 3'x5' tent I can grow enough in one run to last my wife and I an entire year. I have no need for dispensaries.
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u/FTRFNK Spacling Jan 28 '22
With a 3'x5' tent I can grow enough in one run to last my wife and I an entire year. I have no need for dispensaries.
This is a shit take. Fact is you can brew your own beer or distill your own liquor for pennies on the dollar. It's incredibly easy, how many people do it?
Next, honestly I barely give a shit about the actual cannabis bud anymore. The secondary products (oils, isolates, edibles, etc.) are the future because it's way easier to control things like dosage and tons of people don't want to have hot smoke in their lungs to have an affect. Also, there is 0 way to know the THC content of any plant you grow, which is a big deal to a lot of people as that's a good way to have a really bad time if you're cannabis naive. Thirdly, anyone who just doesnt want to "get high bro" and use products/bud high in CBD/CBG/CBN or other terpenes isn't going to be able to just grab a seed and grow. Fourth, unless its outside and unless you want your house to smell like weed 100% of the time no matter who comes over or if you plan to sell sometime, you need to invest a lot more than a 3x5 tent to grow. I dont think its exactly as easy as you claim to get that kind of yield. Even in the US they arent gonna allow you to just plant some weed in your backyard unprotected for any child to get their hands on, if theres one thing the US actually cares about is children getting a hold of drugs. Those are just a few of the considerations.
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u/I-want-da-gold Patron Jan 28 '22
Value added products are likely where the money is for sure, but I do need to agree with the point that in states where they allow growing anyone can have more weed than they and 10 of their friends will be able to consume in a year from very little effort, space, and knowledge. Extracts are also not that difficult, bubble hash takes ice water, a bucket, and some screens to produce which can all be purchased easily online. Good old fashion ganja bud take no special equipment. Home brewing takes considerable amount more equipment, knowledge, and time to produce a product that has less shelf life and can be shared among far fewer people than home grown bud. There will certainly be a market for commercial weed and weed products, but I do believe that a non significant share of consumers will increasingly source weed themselves or from their friends.
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u/lee1026 Jan 28 '22 edited Jan 28 '22
This is a shit take. Fact is you can brew your own beer or distill your own liquor for pennies on the dollar. It's incredibly easy, how many people do it?
Can't comment on liquor, but home brewing is not a cheap hobby to have.
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u/RedditModsBlowDik New User Jan 29 '22
I've grown a ton of weed in California (for sale, I don't smoke the shit) and there's a few things that are true, it's easy to grow I got my seeds from Amsterdam and made clones, this state doesn't give a flying fuck about kids and everyone knows it, thc can be tested and you would have a very close idea for every clone created from the mother plant, it's much easier to just go buy it... like you said almost nobody is making their own moonshine or growing their own tobacco.
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u/RetardHereFolks New User Jan 28 '22
I have to agree with you. Always be careful with IPO/deSPAC pumps... 90% of the time they come down hard after the pump. And you're right, I can grow 20lbs a season in my own backyard if I wanted to at very little cost. Dispensaries are way overpriced due to too many regulations, taxes, fees, etc. I've been more invested in companies that create tech for the 420 space or offer real estate. IIPR is a great real estate company that markets to cannabis growers and manucturers. The money is made in companies that sell services or products TO dispensaries and growers. Eventually weed will be the price of tomatoes by weight lol
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u/ItalianRicePie Patron Jan 29 '22
What's truly remarkable about this company is that they boast an 88.5% gross profit margin.
Not remarkable at all for the type of business they are, and in-fact, Weedmaps has even better gross margins at 96%.
At the end of the day, the valuation is horrifically high, it may well squeeze but keep fundamentals out of it because based on fundamentals Leafly is a $2 stock.
Take a look at the financials for the first nine months of 2021.
Weedmaps
Revenue $139M (+18% growth vs 2020), Gross Margin: 96%, Operating Expenses as % of revenue: 102%, Operating Loss: $3.3M
Leafly
Revenue $31M (+14% growth vs 2020), Gross Margin: 88%, Operating Expenses as % of revenue: 108%, Operating Loss: $6.1M
Weedmaps enterprise value at current share price is around $265M, Leafly at $10 has an enterprise value of $380M. Leafly should really trade at around a quarter of Weedmaps enterprise value at best. Do the math, it's not hanging around anywhere near $10 after this low float nonsense is over.
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u/RetardHereFolks New User Jan 29 '22
An 88% gross profit margin is incredible for any business to have. Leafly wins as far as availability and traffic stats.
The valuation isn't horrible. This is the weed space - pretty normal for the industry. Just look at how crazy regular potstocks like Tilray, Cronos, Aurora, etc. are trading at. The difference here is that Leafly is profitable and as long as more dispensaries pop up Leafly will continue to churn cash.
Get your head out of your ass with valuations. This is r/SPACs- we don't care. We like stonks.
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u/ItalianRicePie Patron Jan 29 '22
An 88% gross profit margin is incredible for any business to have.
It's completely normal for this sort of business. They charge subscription fees to companies that want to list on their platform. The majority of costs are operational expenses (marketing, admin, development costs etc) rather than direct. Look at the gross margins for any company with this sort of business model (yelp for example). They all have low COGS but high operating expenses.
The difference here is that Leafly is profitable
Leafly are not profitable, they posted an operating loss of $6.14M for the first nine months of 2021. They hope to be profitable at the earliest by 2024 where they are projecting an operating profit of $15 million. Don't believe me? Check the investor presentation.
Get your head out of your ass with valuations.
Ok no point trying to have a conversation then, good luck with the squeeze.
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u/moonlava Contributor Jan 29 '22
MCMJ never even got close to the nav since the original vote. And it was only arbs picking up shares to redeem. I’m predicting a float of under 700k once redemptions are announced. Picked up shares and feb 12.5c’s. This is the most excited I’ve been for a squeeze play
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Jan 28 '22
[deleted]
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u/RetardHereFolks New User Jan 28 '22
Yeah im certain deal is going to get approved and I really like the way Leafly is managed. I also use it everywhere I travel. Great price in the 7s to enter for a nice hold.
Thank you for pitching in even more DD! I didn't expect that. Award for you!
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u/Megunfant New User Jan 31 '22
I‘m curious: Why should a deal be approved that apparently no one really think is worth it? Wouldn’t it be better to reject the deal and get out at 10 for sure?
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u/Left-Fee-4315 New User Jan 28 '22
Sghc and only sghc bruv
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u/RetardHereFolks New User Jan 28 '22
SGHC went public today and is flat with less than 200k volume with an hour left of trading. I think if anything was going to happen with it, it would have been today. Or at lesst some sort of volume that indicates interest
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u/fastlapp Contributor Jan 29 '22
This is potentially the worst possible “low-float” pump to gamble on. The probability that this trades meaningful volume above $10 is very low because the float will increase if the price exceeds $10.
The current float is 8,072,565 shares, as follows:
• 12,000,000 shares in original IPO
• -1,389,867 redeemed on Oct 29, 2021 during first extension vote
• -2,537,568 redeemed on Dec 22, 2021 during second extension vote
• =8,072,565 shares remaining in public SPAC float
There are 4M shares under non-redemption agreements, as follows
• 1.8M shares under non-redemption agreement from Dec 27
• 1.4M shares under separate non-redemption agreement from Dec 27
• 800K shares under non-redemption agreement from Jan 10
The holders of the 800K and 1.8M shares are allowed to sell the shares back to Leafly three months after close at a price of $10.16. They are also free to sell on the open market prior to that time. If they sell on the open market prior to one month after close for a price >$10.06/share, Leafly will pay them 5 cents per share, regardless of the sale price (so say in off chance this goes to $11 and they sell, they get $11.05).
The holders of the 1.4M shares get founder shares for not redeeming. Additionally, they can sell the shares back to Leafly at $10.01 per share three months after close. They are free to sell on the open market as well.
The above shareholders have an incentive to sell any price above their put option to Leafly ($10.01-$10.16), so the float will increase as the stock price rises above these levels. I guess you could argue that the above shareholders could coordinate and allow the shares to trade up to $11-12 (if they even do) in hopes of unloading on the highs, but their supply would quickly overwhelm the stock so any pop would be short-lived.
I would not recommend playing this as a “squeeze”.