U.S. securities regulators are urging special purpose acquisition companies, or SPACs, to strengthen disclosures related to potential conflicts of interest, compensation incentives and other critical information for investors.
The guidance this week from the U.S. Securities and Exchange Commission comes as SPACs, or blank-check companies, become more prevalent among cannabis and mainstream companies seeking a quicker way to go public.
The marijuana industry is seeing a rise in SPAC-related deals.
Two cannabis SPACS, Silver Spike Acquisition and Subversive Capital Acquisition, recently announced deals valued at more than $2 billion.
In the biggest deal, Silver Spike is taking Weedmaps, a California-based advertising platform for cannabis retailers, public with a $1.5 billion valuation.
The SEC’s disclosure guidance is aimed at helping investors better evaluate a particular SPAC and the potential investment risks.
According to the SEC Division of Corporation Finance’s guidance, “The economic interests of the entity or management team that forms the SPAC … and the directors, officers and affiliates of a SPAC often differ from the economic interests of public shareholders which may lead to conflicts of interests as they evaluate and decide whether to recommend business combination transactions to shareholders.
“Clear disclosure regarding these potential conflicts of interest and the nature of the sponsors, directors, officers and affiliates’ economic interests in the SPAC is particularly important because these parties are generally responsible for negotiating the SPAC’s business combination transaction.”
The SEC also earlier this month published an investor bulletin to help investors better understand SPACs.
After a SPAC finds a target acquisition such as Weedmaps, disclosures increase to comply with SEC regulations governing any publicly held company, Law360 noted in its report.