Bank of Montreal broke new ground Wednesday for the “Big Five” Canadian lenders with its participation in a major marijuana deal.
Smiths Falls, Ont.-based Canopy Growth Corp., Canada’s largest licensed producer of medical cannabis, announced a bought deal Wednesday of a little more than five million shares of the company, valued at approximately $175 million.
Canopy noted in a release that GMP Securities LP and Bank of Montreal-owned BMO Capital Markets were leading the stock sale as joint bookrunners, marking the first time a major Canadian bank has helped head an equity financing for a publicly traded medical marijuana company.
“This is the first time a major Canadian bank-owned brokerage has participated in a cannabis securities issue,” wrote Chris Damas, editor of the BCMI Cannabis Report.
A spokesperson for Canopy confirmed that the transaction marked the first such foray by a Big Five Canadian bank.
New junior marijuana ETF offers investors rare exposure to U.S. businessesGrowing legal marijuana — whether indoors or outdoors — is bad for the environment
“Although this does not guarantee participation in the cannabis sector by all six of the largest Canadian Schedule 1 banks (BMO had already been a banker for cannabis companies), it is very positive for the sector, all things being equal,” Damas added.
Other major Canadian banks have yet to dive into the country’s growing cannabis sector in the same way BMO has, and are likely hesitant to do so given their significant business in the United States, where marijuana is still illegal under federal law. But some banks, including BMO, have provided business accounts for cannabis companies, according to Bloomberg.
That stance may now be starting to soften amid a fundraising spree in the Canadian marijuana industry, which had been taking place without the country’s biggest banks. Companies involved in the already legal medical pot business have been seeking funding to serve the coming recreational market set to be legalized by the federal government this summer.
Royal Bank of Canada told the Financial Post in a statement last week that it “currently does not provide banking services to companies engaged in the production and distribution of marijuana.”
“We recognize that the legislative landscape is evolving and we are undergoing a review of our policies,” added the lender.
A spokesperson for Bank of Nova Scotia told the Post on Friday that “we must balance that with our commitment to effectively manage all business risks.”
“While we understand there is a robust debate in Canada and abroad, our priority is to manage risk for our customers and stakeholders to ensure they are protected,” said Scotiabank’s Rick Roth in an email. “Should there be significant change to industry legislation or regulation, we will revisit our risk assessment and make risk policy adjustments if warranted.”
Toronto-Dominion Bank declined to comment last week on cannabis deals, while Canadian Imperial Bank of Commerce said in a statement this week that they were assessing the situation.
“We review all our clients on a case-by-case basis, and specifically as it relates to the cannabis sector, as new regulations come into effect later this year, we are reviewing the legislation and determining next steps,” CIBC said.
Canopy said its agreement with the underwriters includes an over-allotment option for them, allowing for the purchase of up to 759,000 additional shares at the offering price of $34.60 per share, worth nearly $26.3 million. The company said that the deal is expected to close on Feb. 7, subject to some conditions, and that the net proceeds will be used “for capital expenditures for capacity expansion, working capital, and general corporate requirements.”