I. Brief Rundown & Disclaimers:
Sup everyone, it’s me u/Ropirito, here with another banger. I decided to summarize and add my own data to previous DDs made by users for Merida Merger (MCMJ). I find this play to be exceptionally under the radar despite a potential merger that could come before the end of the year. I am borrowing some charts/images from their posts while including my own original data and rundown of the play. I have also tagged the sources near the bottom along with the users to make sure they are given credit.
Anyways, SPAC szn is BACK with a money printer that would make JPOW salivate so I’m here to discuss $MCMJ.II. Who They Are & What Do They Do?
$MCMJ or Meridia Merger Corporation I is a SPAC that is merging with Leafly as a Post-DA spac that has options and a merger deadline coming up. It has a low float of around 12-13M and is at NAV as of now but has fluctuated at or below NAV for several months now. $MCMJ IPO’d in Nov. 2019 and is primarily in the cannabis industry. The acquisition company Leafly was announced on August 9th for a new ticker $LFLY. Over this past year, we’ve seen the cannabis industry grow massively, reaching higher than when Travis Scott declared, “I’m the highest in the room”. The stock itself is not that popular, but options volume has been increasing significantly, indicating to me that the merger is coming soon.
Leafly itself is an online cannabis marketplace through their website and app, offering a wide variety of strains and CBD products. It has been around for more than a decade since 2010 and serves over 7,800 brands. Their marketplace has over 125M visitors every year as well indicating the high demand just from the US market. They themselves do not produce weed but rather act as the Amazon for weed and related products.
I’ll be realistic however. This is not a fundamentals play and the main focus is on the small float and potential merger deal coming up. I am simply laying out the information seen from several sources and your trades are your own decisions. I am not responsible for whatever plays you make as this is not financial advice.III. Merger & Catalysts:
Currently, the merger deadline is being voted on to extend to Dec 31st instead of Feb 5th, giving a closer window. This is based on the latest DEF 14A filing. A special stockholders meeting will be held Oct 29th to determine when the Business Combination will be completed. Most estimates have already believed that the combination will be completed Q4 2023, or within the next 2 months which may explain the recent call volume (more on that).
As others have said, low float deSPAC plays could possibly disappear if exchanges prevent options from staying open post-merger. Whether this will actually happen is up to debate but the window seems to be narrowing based on the current SPAC pipeline of listings.
SEC Filings:
The recent increase in filings may be a sign of more behind the scenes activity pre-merger. In past months, 8-K updates have come out approximately bi-monthly if not monthly. However, in October we can see a far more frequent weekly filing along with consistent merger communications in the past 2 months. This is unusual compared to the rest of the year but makes sense given the upcoming deadline.
Gamma Ramp:
I will discuss this later in this post, but based on Unusual Whales data, today’s call volume jumped from 1500 to nearly 20,000. Many of these are Nov 10C, setting up a potential gamma ramp.
NASDANK Listing:
Thanks to u/DN-BBY who talked to Investor Relations at $MCMJ. According to them, Leafly will most likely be listed on the Nasdank and with the weed market dead since early February, regulatory catalyst may resurge interest.
Government Regulation:
- SAFE Banking Act: Will allow banks to process weed transactions. Apple already adjusted their rules which has allowed Leafly to let their users make in-app purchases of weed products. More on this bill here.
- Cannabis Acts:
State Legalization: This serves more as a catalyst for the industry but if South Dakota, Florida, and/or Texas do legalize marijuana, ~50M more people have exposure.IV. Following The Flow:
Now, ideally this play would stay under the radar for several weeks until near the merger date. However, over the past week there has been very unusual options flow on the chain. The November 10C prior to this week were being bought up relentlessly for 5cents.
In terms of volume, there was a 550% and 700% deviation in warrants and share volume respectively, just today:
Next, taking a look at Call and Put volume today we can see several large spikes within the last 2 days:
Call & Put Statistics on $MCMJ
Over the last two months and specifically the past 3 weeks, call OI has been slowly but surely increasing while put OI has moved a fraction of the amount. We can see that within the last 2 days, premiums jumped up drastically despite call OI ramping up slightly. MMs are most likely predicting a large move in the stock over the sudden flow of calls, and therefore jacking up prices.
Overall, volume on Nov 10C was ~12,500 for calls and ~3500 for puts. In general, this is a radical increase from the past 3 months for a daily increase. Based on Unusual Whales data, today’s call volume jumped from 1500 to nearly 20,000.
This final table also indicates that volume in general has been picking up for the last 2 months, and is reaching ATHs across 2 years despite the stock barely moving.
Trade Volume Since Jan 1, 2020
The final graph I would like to focus on is from Ortex. We can see a sharp increase in short utilization to nearly 89% while SI itself has been gradually increasing since the beginning of August. Overall shares left to borrow are 80,000, indicating that about 730,000 short shares were available and that currently 650,000 shares are shorted. This would give an approximate SI % of 5%, which of course is not much. The real play here is the small float, a potential gamma ramp, and high redemption. However, I wanted to present this short data to clear any fallacies.
What’s important to note across all this data is that $MCMJ is still trading at/below NAV despite this unusual activity.V. Fundamentals & Financials:
Leafly is very unprofitable for the next 2 years as costs continue to increase as they expand, but revenue continues to stay negative through 2024 despite strong growth guidance. Thanks to the second DD linked at the bottom for this quote,
“We began operating in 2011 and have yet to generate a profit. We incurred a net loss of $10 million and $32 million for the calendar years ended December 31, 2020 and 2019, respectively. We intend to continue to expend significant funds to support platform feature development, expanding our service offerings, expand our marketing and sales operations, improve and expand our technology infrastructure, hire additional employees, pursue strategic opportunities, meet the increased compliance requirements associated with our transition to and operation as a public company and otherwise support our operations and growth. As we continue to grow, we expect the aggregate amount of these expenses will also continue to grow.”
“We have a history of net losses, and we may not achieve or maintain profitability in the future, especially as our costs increase.”
Basically, this company is technically in the process of exiting a hole as we speak, which leads me to believe that despite the positive catalysts even post-merger, many holders redeem their shares and therefore result in a high redemption rate. It is ironic but Leafly being negative on the fundamentals is a positive with these deSpac plays.VI. Float:
Again, pulling from u/Quarantinus’ DD, he does an amazing breakdown of the float, redemptions, warrants, and lockups. Here is the link to his DD. Again, these numbers are estimates so do your own fact checking prior to making investments.
The S-4 form, filed this September 8, contains all of the following data. My quick summary of his numbers is as follows:
Pre-redemption, there are 13,001,552 public shares, 3,250,388 sponsor shares and 120,000 underwriter shares**. This makes up the insider amount for a total of 16,371,940 shares outstanding**.
So our final free float is ~13M shares.
Redemptions: On page 36 of their S-4, maximum redemption is 7,658,804 shares because $MCMJ is “required to have $85M in Closing Cash… after giving effect to payments to redeeming stockholders. However, compliance with this condition can be waived if redeemed shares are higher than that. Essentially, as many shares can redeemed if necessary. At 75% redemption, float will be around 3.25M shares while at 90% redemption, float would end up at 1.3M shares.
Another key thing to remember is that there is no pipe, which means no dilution is possible post-merger. The float is what it is post-redemption without the risk of pipe unlocks.
For extra details on Warrants & Lockups, please read the DD I linked at the beginning of this section. I will be diving deeper into data instead.VII. The Play & Being Realistic:
Currently, IV seems to still be relatively low, varying anywhere from 65-75% on January calls, to 95% or 100% on November calls. I find this to be low for a DeSpac/merger play of this type, especially given the small float.
The main play here would be any combination of calls, warrants, and shares, all of which reduce the free float and/or result in a gamma ramp. However, keep in mind that the actual date for merger is unknown. All signs point towards it occurring soon, but manage your risk accordingly.
Realistically, $MCMJ could get a pop to $11 or $12 off the small float alone, but based on the high call volume over the past month and day, a gamma ramp could contribute to prices higher than $MCMJ’s CEO.
This article was written by u/Ropirito.
