BMO’s marijuana debut not slowing smaller firms’ roll
Bank’s deal with Canopy could boost competition, legitimacy of new sector
Bank of Montreal’s medical marijuana financing debut may herald more competition for institutions already doing cannabis related business, but it could also lend more legitimacy to the industry, some players say.
BMO became the first major Canadian bank to enter the marijuana space on Wednesday, when Smiths Falls, Ont.-based Canopy Growth Corp., Canada’s largest licensed producer of cannabis, announced a $175-million share sale.
BMO Capital Markets was one of the two joint bookrunners on the bought deal, Canopy noted, the first time a “Big Five” Canadian bank has been involved in leading an equity financing for a publicly traded medical marijuana company.
However, cannabis-related companies in Canada raised more than $2 billion last year without the help of the big banks, according to numbers from New Yorkbased Viridian Capital Advisors. The deals were put together by relatively smaller shops that have been doing the majority of pot-related business, such as Canaccord Genuity Group Inc.
“Obviously this development brings increased competition within the capital markets, but it also supports continued expansion for the cannabis industry, which Canaccord Genuity has been supporting since its infancy,” said Pat Burke, president of Canadian capital markets for Canaccord, in a statement on Thursday.
Canaccord has been one of the busier financiers within the Canadian cannabis sector so far. On Thursday one of its latest deals — a bought-deal offering for marijuana company Nuuvera Inc. on which it is one of the lead underwriters — was upsized to $45 million.
“As the sector continues to evolve we are confident that increased participation from a broader range of participants will benefit the overall market,” Burke said.
Other Big Five banks could eventually work their way into the sector as well. Royal Bank of Canada told the Financial Post in a statement last week that it “currently does not provide banking services to companies engaged in the production and distribution of marijuana,” but that “we recognize that the legislative landscape is evolving and we are undergoing a review of our policies.”
David Cusson, chief executive officer of Echelon Wealth Partners Inc., which has also underwritten equity financing for cannabis companies, said that the other Big Five banks may want to see how BMO fares.
“I think they’ll wait and see how the Canopy deal works out in the short-term, but I do think you’ll start to see other banks participate in the sector,” Cusson said by email.
The BMO -Canopy deal may also help ease any concerns investors may have with the industry, he suggested.
“To some degree, BMO being a co-lead in the Canopy deal legitimizes the sector for some institutional accounts where they can now point to their risk committees and trustees that one of the big five is co-leading a large financing,” Cusson said.
He did, however, have one concern about the big banks getting into the sector.
“My only point of caution is that price discovery may suffer for the cannabis companies as the banks get more comfortable in the space and bank debt lending and equity financing potentially get linked,” Cusson said. “The cannabis companies, until now, have been exclusively banked by the independent (non-bank) firms which are free of those potential conflicts.”