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When bankers tried to bid for a new cannabis company a few years ago, it was difficult to convince investors to hold meetings. Those who did it often could not become familiar with the area.
"It was a tough sell," said Steve Ottaway, head of the health care investment bank at
GMP Capital
Inc.
GMP 1.79%
who led the case. "People were very skeptical."
Now,
Canopy growth
Corp.
GSC -1.58%
is one of the largest marijuana companies by market capitalization, and GMP is one of the largest financial advisers in the marijuana industry. Mr. Ottaway said he was so busy that he had to put aside his summer vacation plans in Europe with his sons.
The frenzy of investors around cannabis companies was a boon to GMP and a group of small Canadian financial companies that entered the sector early. Specialized investment banks, including
Canaccord Genuity Group
Inc.
CF 0.44%
According to PitchBook, data provider, PI Financial Corp. and Eight Capital helped everyone to offer initial public offerings and reverse mergers worth more than $ 200 million in Canada and the United States. Cormark Securities Inc. has also been involved.
In a report released in August, GMP said underwriting revenues had risen 18 percent between April and June, thanks in part to its work with marijuana companies.
Investors are investing in the sector before the legalization of recreational marijuana use in Canada in October. Market values have skyrocketed, leading some to make comparisons with last year's bitcoin rally and the tech bubble in the late 1990s. More established US and Canadian banks have turned away. sector, are starting to take note of it.
Yet five years ago, the few outstanding deals were mainly reserved for small Canadian companies better known for their work with mining companies.
"A handful of Canadian investment banks have really helped the industry get started," said Cam Battley, chief executive officer of the company.
Aurora Cannabis
Inc.
one of the largest marijuana companies in Canada.
As marijuana companies grow and big banks become more familiar with the sector, some are wondering if Canadian small businesses can keep their lead.
Goldman Sachs Group
Inc.
informed
Constellation Brands
Inc.
on a $ 4 billion investment in Canopy in August and
Bank of America
Corp.
provided a bridge loan. New York Investment Bank
Green Hill
& Co. advised Canopy.
Based in New York
Cowen
Inc.
led the initial July public offering
Tilray
Inc.
whose surge and collapse in stock prices in recent weeks have captivated traders. The stock is listed in the United States on the Nasdaq.
There were also some failures. In June 2017, Canaccord and Eight Capital were withdrawn from a planned private placement of Can $ 80 million ($ 61.4 million) by the Vancouver-based company.
Wheaton cannabis income
Corp.
-Removed as Auxly Cannabis Group Inc. – after reports revealed that the banks had stakes in the company and were in conflict as they attempted to raise funds from investors.
Cannabis Wheaton's general manager, Chuck Rifici, said at the time that the deal had been unveiled in a press release issued a few months earlier, but the company still dropped the banks and lifted C $ 115 million (US $ 88.2 million).
Bank of Montreal
less than a year later.
The Bank of Montreal has been the most active among the major Canadian banks. She has offered loans, equity financings and mergers as well as acquisition advice to cannabis companies such as Canopy,
Cronos Group
Inc.
and Aurora Cannabis.
Canadian Imperial Bank of Commerce
was a leader in a recent $ 104 million Canadian private placement, alongside GMP, for Canopy's venture capital industry.
The other major banks in the country, including the Royal Bank of Canada, the Toronto-Dominion Bank and the Bank of Nova Scotia, have moved far away from the sector.
US banks, too, are largely holding back. Although several US states have legalized marijuana for recreational or medicinal purposes, it is still illegal under federal law. This poses risks for large US banks, subject to heavy federal regulation.
Banks doing business in the industry get tough on their work. The Bank of Montreal, for example, will not work with companies operating in the United States, but will not follow the same rules as the Toronto Stock Exchange or Nasdaq, which do not list companies operating in the United States.
A banker said his company had asked for legal advice on the possibility of signing an agreement, for fear of being asked questions at the border about his involvement in the sector.
These fears have been exacerbated in recent days when a US Border Protection and Border Protection official told Politico that Canadians working in the marijuana industry risked a lifetime ban on marijuana. 39, enter the United States.
The agency said in a statement: "While marijuana continues to be a substance controlled by US law, it contributes to the proliferation of the legal marijuana industry in US states where it is considered legal or may affect the eligibility of the latter ".
Write to Ben Eisen at [email protected] and Vipal Monga at [email protected]
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