Supply chain may be next big pot plays for financiers

TORONTO With recreational cannabis now legal in Canada, the next big pot plays that could start emerging for investment banks and other lenders may not have anything to do with actually growing plants. Rather, those opportunities could involve more routine things, such as the packaging or shipping of cannabis.

Ratings agency DBRS Ltd. summed up this opportunity last week in a report on financial institutions and the burgeoning “distribution chain” for cannabis.

“New participants may include wholesale distributors, transportation companies, packaging and marketing companies, retail stores, cafés and cosmetics companies,” DBRS said. “Thus, there will be an increased need for financial services as the distribution chain expands.”

Bank of Montreal, which has been the most marijuana-friendly member of Canada’s Big Five banks, already has an eye on the companies that are popping up to serve the fledgling cannabis industry.

Speaking with reporters at the bank’s investor day last week, the incoming head of BMO’s capital markets unit said the pot space is an “evolving market” with a changing “value chain” that could involve logistics, retail and technology. “To me, that’s the next wave we’re going to watch, is the evolution of the way the industry get serviced,” said Dan Barclay, the current co-head of global investment and corporate banking who will be taking over as head of BMO Capital Markets as of Nov. 1.

BMO’s attention to the distribution system for pot dovetails with DBRS’s expectation that “new participants will enter the industry at different stages of the supply chain.”

“Other than the traditional financing that (financial institutions) have provided the medical marijuana industry, which has so far been relatively modest, FIs can now provide financial services to a distribution chain that will be much larger in volume,” DBRS said.

In a separate report, DBRS also gave the Canadian pot space a non-investment grade, citing uncertainty about the sector.

According to last week’s dealtracker from New York-based Viridian Capital Advisors, nearly US$5 billion of US$7.6 billion of the cannabis-related capital that has been raised this year has flowed towards cultivation and retail plays.