Canadian cannabis deals boost boutique investment banks in 1st quarter

RF Capital

05/04/2018 11:00

By John Tilak
    TORONTO, April 5 (Reuters) - A slew of equity capital
markets offerings in the cannabis sector helped smaller Canadian
investment banks and boutiques climb up the league table
rankings in the first quarter, according to Thomson Reuters data
released on Thursday.
    Cannabis-related offerings accounted for about 24 percent of
overall Canadian deal activity in a the first quarter, when the
total dropped 40.5 percent from a year ago to C$7.5 billion, the
data showed. Volumes were largely hurt by weakness in the
heavyweight energy sector. It was the slowest first quarter
since at least 2014.
    "The decline of energy issuance has been dramatic relative
to last year. If this keeps up, it will be a tough year overall
from a volume perspective," said Sante Corona, executive
managing director and head of equity capital markets at TD
Securities.
    TD Bank  TD.TO , Canaccord Genuity  CF.TO  and Credit Suisse
 CSGN.S  took the top three positions in the equity capital
markets rankings, advising on deals worth C$954 million, C$797
million and C$677 million respectively. National Bank of Canada
 NA.TO , GMP Capital  GMP.TO  and Eight Capital rounded out the
top six. Canaccord advised on 29 deals, the largest number.
    The strong performance of Canaccord, GMP and Eight Capital
is unusual because the six biggest Canadian banks tend to take
all the top spots, often only swapping places. With the
exception of Bank of Montreal  BMO.TO , which has started
participating in cannabis deals, the major banks have stayed
away.
    But the strong contribution from the cannabis sector, which
includes dozens of companies, highlights the business
opportunity it presents, and all the major banks are evaluating
the risks and benefits, sources close to the big banks said over
the past week on condition of anonymity to discuss sensitive
client matters.
    "It's an entrepreneurial business model attracting risk
capital. So the (big) banks don't like to risk their capital
with earlier stage companies," said Daniel Daviau, chief
executive of Canaccord and former co-head of investment banking
at CIBC.
    Daviau said robust mergers and acquisitions in the cannabis
industry were driving equity offerings. "Cannabis companies have
decided they need scale to attack the global market," he said.
    Bankers cited greater depth and breadth of institutional
investor interest.
    "We're seeing increasing acceptance of the marijuana
industry by blue chip investors," said Steve Ottaway, managing
director, investment banking at GMP. "It is a natural evolution
of the sector as companies are becoming big enough and deals are
becoming significant enough to attract mainstream investor
attention."
    JPMorgan Asset Management invested in a C$133 million
offering by MedReleaf, a major licensed producer of cannabis,
Ottaway said.
    JPMorgan did not respond to a request for comment.

 (Reporting by John Tilak
Editing by Denny Thomas and Richard Chang)
 ((john.tilak@thomsonreuters.com; 1-416-687-7918; Reuters
Messaging: john.tilak.reuters.com@reuters.net))