THE ART OF THE DEAL
For Canada’s investment bankers, cannabis has been the gift that keeps on giving, unleashing a steady stream of IPOs, takeovers and financings. Last October, U.S. alcohol giant Constellation Brands Inc. upended the sector with a $245-million investment in Canopy Growth, putting Canada’s cannabis industry on the international map. Then there was the three-way takeover dance that saw Aurora Cannabis snatch up CanniMed Therapeutics for $1.1 billion in March, leaving Newstrike Brands Ltd. out in the cold. But nothing could match Constellation’s second planned investment in Canopy, a staggering $5 billion, which reset valuations in the sector and set off a flood of speculation as to who might come calling next.
Steve Ottaway, Investment Banker, GMP Securities We did the largest IPO in the space at the time (2017), which was MedReleaf. That was a $100-million IPO. And that was pivotal, because we saw people coming into the book like JP Morgan. And then you’re just shocked, because you’re realizing, ‘Wow, this phenomenon is really starting to take off. People are looking at this as a real investment.’
Jamie Nagy, M&A Banker, Canaccord Genuity Group Inc. The pace of the deals moves very quickly. One of the analogies I like to use is the industry is in dog years. Everything is going so fast. And issuers don’t want to waste time on, ultimately, deals that won’t happen. Bruce Linton So the hardest deal was the first Constellation
one for the $245 million. Because none of us needed to do that deal. Capital markets loved us, they loved them, but it took a lot of working around. Eleven months. So that one was tiring but fun. But people said to me, ‘It’s a change of control.’ Well, when the banks weren’t giving you any money, what do you do? Vic Neufeld (Constellation’s entry) led to significant appetite and significant interest from many industry leaders in different spaces. For example beverages, whether it’s the recovery drinks, it’s utility drinks, it’s beer, it’s wine, it’s alcohol, you’re going to get tobacco very interested now, you’re going to get the agricultural guys like Monsanto interested, they are all coming forward with a degree of interest, curiosity and how they can leverage their respective brands and their consumer profile.
Cam Battley, COO of Aurora Cannabis So the first thing is, if I ever have to go through a hostile takeover again, it will be too soon. It’s a very difficult and emotionally challenging process. Because you’re in a fight, and it’s a very high stakes fight, and you have to win and it’s as simple as that. Once you launch that hostile bid, you can’t go back. I remember that day. It happened very fast, and we made a very informed but very rapid decision that we were going to do it. You’ll remember that it was the shareholders representing 39 per cent of CanniMed who came to us and indicated that they felt it was necessary to change the management of the company in order to maximize the potential of CanniMed. And we made a decision over the course of five days to make that bid. Nobody got any sleep. In quarterbacking that hostile bid, I don’t think I got more than five hours of sleep for four months and it was seven days a week of work. Deepak Anand The $5 billion that Constellation put into Canopy Growth sent signals to everybody that this is a mainstream industry. Clearly, the stock markets reacted very positively at the time. But it wasn’t just about the markets. I was thinking that, all right, people are now looking at our industry very seriously. That was a pivotal moment.
Bruce Linton What I really don’t understand about stock markets — well a lot of things — but if one company is doing a bunch of stuff right, and has all the money, which means they have a balance sheet to execute and everybody else doesn’t, why does everyone else’s value go up? Greg Engel We’ve seen two big shifts happen in the space. One is, we continue to see kind of larger, what may have been more traditional large funds, come in. And I think one of the key things that drove that was when Bank of Montreal came into the space as the first major Canadian bank to come in. I think that signalled to the market that, OK, this is a large, growing, legitimate, global industry that could be based out of Canada. And the other is we’ve seen investor interest in the U.S. grow dramatically. Vic Neufeld Let me just say, some companies (within the cannabis space) need to acquire. They need to acquire because fundamentally they don’t have the strength necessary to be industry leaders. Acquisitions are strategic, but I can suggest to you that some acquisitions are to cover up shortcomings and they are buying these companies at extreme premium prices because they know others have the building blocks that they don’t have.