BMO Becomes First Canadian Bank to Lead Marijuana Equity Financing

Bank of Montreal (BMO) leads marijuana equity financing in Canada. Underwrites a $175-million stock sale for Canopy Growth Corp.

As American marijuana companies struggle to find financial institutions to work with, banks north of the border are cashing in on the booming Canadian industry. Bank of Montreal is now the first major Canadian bank to lead an equity financing round for a public company in the marijuana sector. Marijuana equity financing in Canada has begun.

BMO underwrote a $175-million stock sale for Canopy Growth Corp.

The deal was announced after the markets closed on Wednesday. BMO agreed to a price of $34.60 per share, 8 percent lower than Canopy’s closing share price on Wednesday.

Canopy is the largest Canadian public company in the cannabis sector with a market capitalization of $7.2-billion. It has seen its shares climb 26 percent since the start of the year, however, they have fallen more than 10 percent since Jan. 9.

marijuana equity financing Canadian bank BMO
A trimmer clips stray leaves in a cannabis grow room at Tweed in Smith Falls, Ont. Photo by Chris Donovan

Canada’s big banks hesitant to get involved

With significant operations in the U.S., most of Canada’s big banks are hesitant to dip their toes into the emerging marijuana industry. A schedule 1 listing for marijuana makes for icy waters and cold feet amongst financial institutions.

However, Canopy is one of the Canadian-headquartered cannabis companies with no current operations in the U.S. This makes Canopy a safer bet for banks to do business with. Chief Executive Officer of Canopy Corp., Bruce Linton says that BMO was,

“very grueling about the fact that they are not looking to work with companies that break American law.”

Canopy is also a larger company with an inclusion on the S&P/TSX, and a broad following of institutional investors. Linton says this will be a new trend and signals the new normal. He says,

“What I think is going to happen is the institutional buyers who’ve said we don’t really do this because banks don’t do this are going to say ‘shoot, we really should do this.'”

Canopy is raising funds at a particularly tumultuous moment for the industry. The Canadian Securities Administrators (CSA) has said it is rethinking existing rules that allow marijuana firms with U.S. operations to go public on the stock market and raise money in Canada.