The U.S. and Canadian equity markets are currently enjoying different types of highs.
In the U.S., the three main stock market indexes are hitting levels not seen before while in Canada it is investors’ interest in medical marijuana stocks that is reaching new heights.
Consider this: Over the past three weeks, six local companies raised $124.5 million of equity capital. To put that number in perspective, $124.5 million makes this the busiest quarter on record and almost six times what was raised in the second quarter.
Another perspective: The financings are more than half the amount marijuana-focused companies have raised in total since the first quarter of last year. That group of companies, has according to information prepared by FP Data Group, raised $206.6 million over the last 20 months, through 13 separate transactions.
The new issue rush hasn’t occurred randomly. The deals have occurred after Ottawa announced steps toward legalizing and regulating marijuana with the new system being developed by a task force with public consultation.
So what do we know about the marijuana financings?
The deals have ranged from $30 million (an amount raised by both Canopy Growth Corp. and Aphria Inc.) to $6.5 million raised by International Cannabis Corp. Canopy, which grew out of Tweed Inc., the industry pioneer, is the sector’s largest company with a market of $425 million. International Cannabis (ICC) is the sector’s newest entrant and emerged following a reverse takeover with Shogun Capital Corp. (That reverse was Shogun’s so-called qualifying transaction.) ICC is headquartered in Uruguay, which legalized state controlled sales of cannabis in late 2013.
Between the extremes of Canopy and ICC are financings by Aurora Cannabis ($23 million), OrganiGram Holdings ($20 million) and Mettrum Health Corp. ($15 million).
Because of strong demand the deals have been upsized. In percentage terms the upsize ranges from a low of 14.3 per cent (OrganiGram) to a high of 50 per cent (Mettrum).
As with normal corporate financings, issues of the marijuana group of stocks come with a discount. Relative to the five-day volume weighted average price the concession ranges from 2.7 per cent (Canopy) to 9.8 per cent (Mettrum.) The discount relative to the issuer’s last trading price is larger ranging from 11.6 per cent (Canopy) to 19.3 per cent (Organi.) One possible explanation for the difference between two discounts is that to place larger amounts of equity, issuers bow to investors’ demands for healthy concessions. Another is that, somehow the market hears about a deal and then sells off quickly.
The issuers are not loath to issue healthy amounts of stock. Using the measure, the size of base offer to market cap, issues have ranged from 7.7 per cent (Canopy) to 33.2 per cent (Aurora).
Since the first quarter of 2015, seven marijuana issuers have raised capital in 13 separate financings. Canopy (four deals for $77.6 million in proceeds); Aphria (two for $41.5 million); Organi (two for $30.4 million); and Mettrum (two for $23.6 million) have been to the markets on multiple occasions.
A small group of dealers tend to dominate the financings. Of the six deals this quarter GMP and Dundee Securities were each the lead/book runner on two deals, with Clarus, Canaccord and Cormark each leading one transaction;
The six latest deals come with healthy fees. The fees range from 5.75 per cent (Canopy) to seven per cent (Aurora and ICC.) In total almost $7.7 million has been generated for the agents.
Original Article via FinancialPost