INFOR Financial Inc.’s Neil Selfe quickly grasped the significance of what was before him last summer.
Canopy Growth Corp., one of Canada’s largest licensed producer of medical marijuana, had sought INFOR’s advice on a possible deal with U.S. alcoholic beverage giant Constellation Brands Inc.
“And we unequivocally said ‘if you can make that deal work, from a financial standpoint, it is such a game-changer that you have to do it,’” Selfe, Infor’s CEO and managing principal, said in an interview.
It is kind of this opportunity to create a global champion or two
The transaction was announced on Oct. 30. Constellation, a Fortune 500 company that sells Corona beer, would pay approximately $245 million for a 9.9-per-cent stake in Canopy, a Smiths Falls, Ont.-based outfit whose growing facilities include the site of a former Hershey chocolate factory.
“We realized that it was going to be hugely meaningful for the sector because, prior to that point in time, very few large institutional investors were invested in the cannabis space,” Selfe said of INFOR, which acted as financial adviser to Canopy on the deal.
“Having a global leading brand company come in and invest $250 million, after having conducted the extensive due diligence they had, we knew would be a real… endorsement, not just for Canopy and its strategy, but for the space overall,” Selfe said.
In the run-up to Canada’s planned legalization of recreational pot this summer, cannabis companies such as Canopy have been on a fundraising tear, trying to raise the money they need to gain an advantage on the competition. Canadian financial institutions helped raise $1.68 billion in 56 marijuana deals last year, according to Financial Post Data. Canaccord Genuity Corp. led the way, raising nearly $719 million from 22 deals.
“Like mining, perhaps, it’s kind of this opportunity to create a global champion or two,” said Simon Romano, partner in the capital markets and mergers and acquisitions groups at law firm Stikeman Elliott LLP.
One obstacle in the way of growth is the current illegal status of marijuana at the federal level in the United States, a cloud that continues to hang over the entire cannabis sector. Canopy and some other companies, however, have stressed that they will only conduct their business in places where it is federally legal.
And even with rumblings coming from south of the border, dealmaking in the Canadian cannabis sector has still continued apace — and in unique ways. Stikeman acted as Canadian legal counsel late last year for what ended up being a $135-million initial public offering of Cannabis Strategies Acquisition Corp., a company specifically formed to buy marijuana-related businesses.
“I think that’s just telling for where the sector is going,” Romano said of raising that much money to sniff out cannabis-connected opportunities.
On the finance side, the Cannabis Strategies IPO was underwritten by Canaccord Genuity Group Inc. Graham Saunders, head of capital markets origination at Canaccord Genuity Corp., one of the biggest underwriters of cannabis deals in Canada, called it “a very busy year for financings in the cannabis sector.”
“M&A started to show up as well,” Saunders added in an email. “The cannabis business requires lots of capital to be developed. The market has been very accommodating and functional for capital raises for these companies.”
The scale of dealmaking could be set to increase, as until recently, dealmaking in the Canadian cannabis industry had been chiefly left up to independents like Canaccord. The entrance of bigger banks could pave the way for bigger deals, with some interest already evident.
Canadian Imperial Bank of Commerce, along with Farm Credit Canada, extended a $20-million credit facility last April to Markham, Ont.-based MedReleaf Corp., the medical marijuana company chief executive officer Neil Closner confirmed. Meanwhile, this month Bank of Montreal became the first major Canadian bank to help lead an equity financing for a medical cannabis company, joining other underwriters in a potentially $230.8-million share sale by Canopy.
As the list of licensed pot producers continues to grow longer, the stage is being set for further financing and mergers and acquisitions. “We don’t see any changes in the momentum of either activity,” Saunders said.
Or, as Romano put it, there is a “remarkable interest in people not wanting to get left behind in this race to legalization.”
In January, Alberta-based Aurora Cannabis Inc. agreed to buy Saskatoon’s CanniMed Therapeutics Inc. for $1.1 billion in a hostile-turned-friendly deal after months of negotiations.
“There will be a maturing and some people will make money and some people will lose money in the next two, three years, I would expect,” Romano said. “But, right now, it’s just fear of missing out.”
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