AltaCorp readies for cannabis deals

Focus on mergers, acquisitions

AltaCorp Capital Inc. expects a wave of consolidation in Canada’s marijuana industry in the next few years and is building an eight-person team to take advantage of the coming deals.

The investment banking arm of ATB Financial Services expects to see stronger companies snapping up craft brands and investors demanding performance rather than slick sales pitches.

“The ones that have been talking a big game but haven’t really built a business behind it, they’ll fall away,” said Jeffrey Fallows, a managing director in investment banking and head of the firm’s agriculture and diversified industries business.

“The ones that have the sustainable competitive advantage, that have the real brands, that have the real distribution partners, that have IP-differentiated products, those guys will rise to the top and those will be the big players of tomorrow.”

The sky-high valuations that many cannabis companies have enjoyed, simply by virtue of their involvement in the industry, will come under scrutiny by May 2019 as investors demand to see real earnings and cash flow, Fallows said in Calgary, where AltaCorp is based.

In his role, Fallows is building the bank’s cannabis franchise in Toronto and features five bankers, one analyst and two associates, one of which still needs to be hired.

AltaCorp joins other smaller investment banks including Canaccord Genuity Group, GMP Capital, Eight Capital and Clarus Securities in an industry that’s gained little attention so far from most of Canada’s largest lenders.

Among Canada’s big banks, Bank of Montreal, Canadian Imperial Bank of Commerce and Laurentian Bank of Canada have made some initial forays into providing investment banking services including arranging financings and advising on takeovers.

STRONGER COMPANIES

Fallows said the coming deals may not be as frenzied as in recent years — Canadian cannabis companies have been involved in at least 97 announced acquisitions with a combined value of $8.06 billion this year — but it will produce stronger companies.

“Big guys, as more craft brands start to develop, they’ll be buying those craft brands and bringing them in house, trying to establish that big player or the well-positioned, dominant player in the space for with longevity.”