Description

The skewed risk/reward of BC/U CN on an abbreviated time table makes this our favorite event driven idea of early 2021.

 Background

 As the SPAC market has continued to get hotter, we have been presented with fewer and fewer obviously asymmetric opportunities in the asset class.

Bespoke Capital Acquisition listed on the TSX as a cannabis-focused SPAC in August 2019. They raised $360mm for 18 months with half a warrant per unit.

 Cannabis SPACs fell out of favor along with the cannabis industry in late 2019/2020 and some cannabis SPACs have pivoted to other industries as a result. E.g. THCB has an LOI with Microvast (batterytech).

On December 18th BC/U CN put out a press release that we believe creates an exceptional risk/reward at current prices ($10.30), particularly on an IRR basis.

Key Highlights

1. The company announced that it has broadened its acquisition search beyond the scope of cannabis and that it is engaged in substantive discussions with prospective targets in the alcoholic beverage and consumer products sectors.

Paul Walsh is the Executive Chairman. He was CEO of Diageo from 2000-2013. Diageo was a ~4-bagger in that time. It’s reasonable to assume that he is well-connected in the alcoholic beverage space and that he’d be able to add value as a sponsor.

We look favorably upon management teams that are willing to pivot to industries that are more likely to be appreciated by the public markets.

2. The Company also announced that it is pursuing a listing of its Class A Shares and Warrants on the Nasdaq stock market by the end of January 2021.

We believe there exists a Canadian-to-US arbitrage for pre-deal SPACs. The level of froth in the US does not seem to exist in the Canadian market. By relisting in the US, BC/U will expose itself to the frothiness of the US market which we believe increases the asymmetry of the risk/reward by increasing the probability of a “blue sky” reward scenario.

3. BC/U is very close to its deadline.

18 months from August 15, 2019 is February 15, 2021. As of today BC/U CN has not filed for an extension, but they will automatically get another three months (21 months total) if they announce a definitive agreement by the 18 month deadline. It is possible they announce a merger in the original time frame. (The tone of the press release does not read like they are struggling to find targets.) It is also possible they file for an extension. In either case, this bet should take 2-6 months to play out.

Risk/Reward Framework

Risk is that we redeem at trust. As of 9/30/21, there is $10.11 in trust. Our risk is 19c.

Reward is less clear. But we think it is safe to say we are getting at least 1:1 odds, perhaps 4:1 (stock trades to $11) or better in the current market environment. For example, we can think of a number of hard seltzer companies that would resonate very well in the public markets. Our reward is “unclear, but a lot”.

Time table: Approximately 2-6 months.

As mentioned above, the skewed risk/reward on an abbreviated time table makes this our favorite event driven idea of early 2021.

Catalysts

Listing on Nasdaq

Company files for extension and includes a teaser of the target they are going after

Definitive agreement

Catalyst

Catalysts

Listing on Nasdaq

Company files for extension and includes a teaser of the target they are going after

Definitive agreement