For investors looking for the next Tilray, the pickings are slim
TORONTO B.C.-based pot producer Tilray has charted a dizzying and volatile run on the Nasdaq since its public debut in July, but if you are looking for the next private Canadian company headed for a blockbuster IPO, the pickings are getting slim.
“I haven’t seen anything of real size that might be able to tap the public market,” said Jason Zandberg, a special situations analyst at PI Financial, who said that isn’t stopping firms from “rushing to the party, trying to raise capital.”
“I just don’t know of any private licensed producers that are as big as Tilray.”
A number of analysts shared similar sentiments, noting that only a handful of remaining private companies have significant operations.
One such firm identified by Zandberg is Tantalus Labs, a licensed producer in Maple Ridge, B.C., that professes to cultivate “sungrown” cannabis in specialized greenhouses. “I think they will be a really strong cultivator, because they are high-end,” said Zandberg.
Tantalus operates a 75,000-square-foot facility, which makes about 3,500 kilograms of flower, according to CEO Dan Sutton. Tantalus will expand it by 50,000 square foot next year, which will raise its output level to 10,000 kilograms annually.
“Many other licensed producers out there have converted old greenhouses used to grow tomatoes, for example — they were hastily converted and the risk of crop-loss is much higher,” Sutton said. “We took two years to design our own facility, before starting production, and so far we have experienced less than five per cent of crop loss.”
According to Sutton, Tantalus has no necessity to go public because it has consistently been able to raise private capital. “We’ve raised about 20 to 25 million in six years and, to be honest, we only have 27 employees so we don’t have such a big need for capital.”
But Tantalus, which intends to sell to the recreational market come Oct. 17, does not have any supply agreements with the provinces lined up, meaning it will not have a bulk buyer for its cannabis.
That is a factor that some industry experts believe is tantamount to becoming a “contract producer,” where the fundamentals of your business become reliant on which LP is willing to buy your product.
Sutton says Tantalus is in “talks with several provinces,” although no contracts have been realized.
“Anyone that’s coming to market and doesn’t have a supply contract won’t have scale for a few years,” said Zandberg.
Another private licensed producer on the radar of observers is New Brunswick-based Zenabis, which owns a 380,000-square-foot growing facility that it says is the “largest indoor medical cannabis cultivation footprint” in Canada. Zenabis has supply agreements with B.C., Nova Scotia and New Brunswick.
In August, the New Brunswick government provided the company with $360,000 in funding for “job creation” and, in 2016, the company received a $4-million loan from the province to build its first facility in Atholville, N.B.
“We have sufficient capital to self-fund this venture. That’s why we wanted to remain private,” said Rick Brar, co-founder of Zenabis.
“Will there be a time and place for Zenabis to look at the public market? Perhaps, yes. But it will make sense for us to first understand and assess the markets to see what value our shareholders can attain. There will probably be a time and a place where that will be viable.”
More than 80 cannabis companies — American and Canadian — are listed on the three main Canadian stock exchanges. To date, Health Canada has issued just 118 licences to produce, cultivate and sell cannabis, which suggests that a significant number of Canadian producers have already sought the public markets to raise capital.
But Andrew Stordeur, the chief commercial officer of privately held Alberta-based Sundial Growers, said his company never really struggled on the cash front, because of the backing of ATB Financial.
In February, Sundial secured a $56-million commercial loan from the provincial Crown corporation, which allowed it to begin construction of its flagship facility in Olds, Alta., about an hour north of Edmonton. “We are a little bit in the shadows because we are not publicly traded. But that helps us focus on our business and get things done, without having to answer to short-term quarterly expectations,” Stordeur said. “I’m not afraid to say it — we are the largest privately held Canadian cannabis company and we have plans to be among the top five cannabis companies.”
Sundial is banking on its hightech growing method, which involves 140 sealed modular grow rooms, allowing it to selectively control lighting and humidity in order to generate higher yield.