Marijuana industry — now worth $31 billion — looks abroad for growth
Countries like Spain, Italy, and Colombia are likely the next growth opportunities for Canadian cannabis companies after a flurry of consolidation at home.
The marijuana industry saw its largest deal to date on Monday with Aurora Cannabis Inc. agreeing to acquire MedReleaf Corp. for $2.9 billion. That followed Edmonton, Alberta-based Aurora’s deal to buy CanniMed Therapeutics Inc. in January for roughly $1 billion and several smaller deals.
Canada has emerged as a global leader in the pot industry as it becomes the first Group of Seven country to legalize the drug for recreational use later this year while a ban at the federal level keeps pure-play U.S. pot companies from major exchanges south of the border. There are now 90 publicly listed companies in Canada with a market value of about $31 billion.
Recent mergers and acquisitions have given the companies the scale to start looking internationally for growth, said Dan Daviau, chief executive officer of Canaccord Genuity Group Inc., the leading Canadian investment bank in the sector. Countries like Germany, for example, allow patients to be reimbursed for medical marijuana to treat a variety of symptoms, he said.
“It’s not just about population,” Daviau said. “It’s also about the governments’ realization that the product is good for lots of different indications.” Canadian firms have the right cost of capital and industry knowledge to add value, he said.
Niche Players
At the same time, there’s still plenty of options for smaller Canadian firms, he said.
“The smaller guys and the guys in the middle need to decide what their strategy is,” Daviau said. “Biggest isn’t always the best. There are going to be some more big guys and some smaller niche guys.”
U.S. cannabis companies are increasingly looking to raise capital and list in Canada because of the sophisticated investor base here, said Graham Saunders, Canaccord’s vice chairman and head of capital markets origination.
“All these companies are in a race,” he said. “The faster you can use capital and deploy it properly and accretively, the better off you’re going be.”
Los-Angeles-based MedMen Enterprises, for example, raised $50 million in subscription receipts last month in Canada ahead of its planned reverse takeover of Vancouver-based Ladera Ventures Corp.
U.S. Capital
Saunders said the U.S. capital markets for cannabis are where Canada was two or three years ago. “It’s easier here. We don’t have listing problems for cannabis assets that there is in the U.S.”
Canaccord is hosting a cannabis conference in New York this week and has about 700 attendees enrolled.
The broadening investor base in Canada has started attracting the country’s biggest banks, lead by Bank of Montreal which landed a mandate to advise Aurora on its takeover of MedReleaf.
Daviau said he wasn’t concerned about the big banks coming into the space, in part because Canaccord has a two-year lead in the sector.
“It’s good for us, honestly,” he said. “It continues to legitimize the industry and broaden the investor base.”