The Canadian cannabis market has been explosive for many reasons over the past several years, but most notably the state of legal cannabis has meant that investors have continued to flock into the market. This influx of capital has led to a large amount of market growth in a short period of time, and has also led to a high amount of mergers throughout the industry. Canada recently voted to allow recreational cannabis for anyone over the age of 21, and this new bill will go into effect some time in the coming months.
The legal cannabis market in Canada will effectively be able to add as much as $5 billion in revenue to the market and that is the lowest estimate. This also means a lot more money going back into the pockets of producers, who can then use these profits to continue growing the industry even further.
One of the main issues in the industry has been the attempt to get legitimate capital from banks or other financial institutions. According to one report “Canadian banks have almost universally stayed away from the weed industry in Canada for fear of criminal and/or financial penalties associated with offering basic banking services to pot stocks.” This type of taboo surrounding cannabis is nothing new and is simply a product of the past hundred or so years of cannabis in the media.
The only option for these companies to raise capital has been through the listing of Canadian stocks and bought-deal offerings. This means according to one report that it is “a means to raise capital by selling common stock, convertible debentures, stock options, and/or warrants to an investor or group of investors prior to the release of a prospectus. Bought-deal offerings have been widely successful in raising capital that pot stocks have used to grow their production capacity. In fact, this past week, one giant marijuana stock announced what’s now the largest bought-deal offering in the history of the Canadian weed industry.”
The company Aphria has continued to be at the top of the cannabis market and recently became the subject of the largest bought deal financing offer to happen in several years. The bought-deal agreement will mean that around 19 million shares of common stock will be “ sold for $11.85 Canadian dollars ($9.13 U.S. dollars) per share. An underwriters’ option exists as well that could allow for an additional 2.84 million shares to be purchased. Without the underwriters’ option, this is a CA$225 million offering ($173.3 million). Including the underwriters’ option, assuming it’s exercised, this is a CA$258.8 million offering ($199.4 million).” This deal is quite massive considering the recent bought-deal financing of around CA$200 million from Aurora and Canopy Growth that went on a few months ago.
This new influx of investments will help Aphria to effectively continue growing more product and producing new methods to make different extractions from the cannabis plant. The new capital will also help to fund a wide variety of projects including upping the capacity that they currently have to grow cannabis.
The market on marijuana is still very much in its infant stages, which means that deals like this are continuing to shape the whole of the market. The hopes are high that in the coming weeks to months, more deals like the one mentioned above, will help the market to reach its full potential. Only time will tell what the effect of the large influx of capital will be on the growth of the space, but things do look to be heading in a positive direction.
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