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With recreational cannabis in Canada, the next big pot plays a role in growing up. Rather, those opportunities could be more routine, 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.
"Retailers may include wholesale distributors, transportation companies, packaging and marketing companies, retail stores, cafes 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 having an eye on the industry.
Speaking with reporters at the BMO's capital markets is a "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," said Dan Barclay, the current co-head of global investment and corporate banking. BMO Capital Markets as of Nov. 1.
BMO's attention to the distribution system for cannabis 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 has provided the medical marijuana industry, which has been relatively modest," said DBRS said.
In a separate report, DBRS also gave the Canadian cannabis industry a non-investment grade, citing uncertainty about the sector. That could change, however, once more data becomes available.
Much of the money invested in the sector is growing up and selling cannabis, not the service side.
To me, that's the next wave we're going to watch, is the evolution of the industry get serviced
Dan Barclay, incoming head of BMO's capital market unit
According to last week's deal-tracker from New York-based Viridian Capital Advisors, nearly US $ 5 trillion of US $ 7.6 trillion of cannabis-related capital growth has been raised to cultivation and retail plays.
Outside of BMO, the other big banks in Canada have mostly been skepticism, which can be prevented by the fact that the drug remains illegal in the United States, where the major lenders do considerable business. In the meantime, credit unions and independent investment firms have become major banks and financiers for cannabis companies.
But BMO has continued to make deals, including co-leading a recent $ 100-million bought deal for Toronto-based Supreme Cannabis Company Inc.
"We have lots of people who think they should be in the business," Barclay said. "And we're seeing lots of things that are truly interesting and innovative, and things that are actually quite boring."
Chief executive Darryl White told reporters that the selection process of the companies is likely to be the most important part of the bank's "triaging."
"Our diligence levels are very high," White said.
Barclay also said that the bank is expecting the volatility in the pot stocks to continue, "and it's going to impact where we're going."
"And the reality is, when we've gotten an industry that's starting from scratch, you're going to get stability, which is probably two to four years from now, you do not really know what the business is."
• Email: [email protected] | Twitter: GeoffZochodne
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