Big banks lighten up on marijuana

marijuana leaf weed

Marijuana legalization is around the corner and longstanding Canadian institutions that have traditionally been cold to cannabis are warming up to the industry.

On January 17, Canada’s largest licensed producer of marijuana, Canopy Growth (TSX:WEED) announced a $175 million bought deal with BMO Capital Markets and GMP Securities L.P.

Canopy Growth intends to use the proceeds from the offer to finance working capital and fund expansion, according to a press release.

Together, as co-lead underwriters, the two companies agreed to purchase 5.06 million shares at $34.60 per share. The offering is expected to close on February 7.

This marks the first time one of the major six Canadian banks will be involved with leading the equity financing for a marijuana company.

Canopy Growth currently only produces medical marijuana. However Canopy Growth along with other players in Canada’s medical marijuana industry are seeking funding for recreational production ahead of the anticipated summer legalization date.

While recreational marijuana is yet to be legalized, medical marijuana has been legal in Canada since 2001. However, for the better part of two decades, legal medical marijuana producers have been unable to obtain financial services or support from the most prominent Canadian banks. for the better part of two decades. 

The move comes 16 months after Scotiabank (TSE:BNS) and Royal Bank of Canada (TSE:RY) strategically took steps to separate themselves from the then emerging marijuana industry   This included closing accounts with businesses even tangentially involved in the industry such as pipe and paraphernalia retailers. Major Canadian banks have cited their U.S. operations and marijuana’s current illegal status in Canada as reasons supporting their hesitation for entering this market in Canada.

Until now, independent investors like GMP securities have financed the marijuana industry. In 2017, marijuana related companies raised over $2 billion from these independent investors, according to Viridian Capital Advisors, an industry specific financial advisory firm.

Media reports in late 2017 highlighted that BMO and TD bank (TSE:TD) were being identified as the preferred banks of the marijuana industry, having numerous accounts  with Canadian marijuana growers. However, their investment arms haven’t stepped into the ring, until now.