$770 million windfall: Canadian marijuana companies see surge in new investments

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Canada’s marijuana-related companies collectively raised more than $770 million in the first half of 2017 – a nearly 1,700% increase from a year earlier – as businesses prepare to ramp up production to meet growing demand at home and abroad.

The funding windfall comes as Canadian cannabis companies are preparing to boost supply in response to:

  • The planned start of recreational cannabis sales in Canada next summer.
  • The nation’s booming medical marijuana market.
  • Overseas demand for their products.

The U.S. dollar-based funding total – provided to Marijuana Business Daily by Viridian Capital Advisors, which tracks cannabis-related investments – dwarfs the $43 million Canadian companies raised in the first six months of 2016. 

The massive amount of money flowing into the country’s cannabis sector reflects huge interest among investors in the market, which is poised for rapid growth.

Most of the funding was directed toward the cultivation and retail sectors; the rest went to the 11 other sectors Viridian tracks, including agriculture technology, biotech/pharma and consulting services. The surge in investment comes amid concerns that a supply shortfall could occur with the launch of Canada’s adult-use market.

“Investors are definitely supporting the growth of the industry to help finance these companies to get where they want to be in terms of plans for production,” said Vahan Ajamian, an analyst in the Toronto office of Canadian investment firm Beacon Securities. “We’re becoming here – and hopefully we have the ability to be – the funding hub for cannabis companies, not just in Canada but around the world.”

Viridian tracks capital raises, joint ventures, mergers and acquisition and licensing deals among both private companies and publicly traded businesses listed on the Canadian Securities Exchange, Toronto Stock Exchange and TSX Venture Exchange.

Recent activity

Two of the latest companies to land investments are Hydropothecary Corp. – the only licensed medical marijuana producer (LP) in Quebec – and Ontario-based Canopy Growth Corp.

Hydropothecary raised 25 million Canadian dollars ($20.1 million) in new financing in July that will help it expand and automate its facility in Gatineau.

Sebastien St. Louis, Hydropothecary’s chief executive officer, said the cash infusion allows the company to increase capacity to meet anticipated demand generated by the adult-use market, which could eventually generate more than CA$22.6 billion in sales.

Smiths Falls, Ontario-based Canopy also raised CA$25 million in July through a private placement financing with a single investor. Canopy Growth intends to use the money to “accelerate into the windows of opportunity that exist domestically and abroad,” Bruce Linton, chairman and CEO, said in a news release.

Mike Gorenstein, president and CEO of Toronto-based Cronos Group, said capital is available for any business with the means to get it.

“There’s definitely a lot of demand for investment dollars,” Gorenstein said. “I’ve never seen anything like it.”

Cronos Group has raised CA$17 million this year for expansion to meet demand for medical, export and anticipated rec sales next summer.

‘Scale up and gear up’

Other companies that landed money in the first half of the year to fuel expansion include:

“Several LPs have been raising funds and expanding operations looking to scale up in preparation for recreational marijuana legalization starting on July 1, 2018,” said Ajamian, the Beacon Securities analyst. “Particularly given widespread concerns that the market will have insufficient supply, LPs are aiming to have as much as possible to maximize market share on Day One.”

Darren Karasiuk – the vice president of strategy at MedReleaf, a licensed producer – said most estimates point to a shortage in supply for the marketplace over the next couple of years.

“So I would certainly suspect that licensed producers out there are going to be working to address that gap,” he added.

The companies are using the money in different ways to ramp up.

Hydropothecary, for instance, will deploy some of its new capital into putting automated robots in place for a full-scale wholesale distribution platform, whereas today the company does individually “custom-pathed” orders for every patient.

The expansion will also add to Hydropothecary’s capacity to store close to CA$300 million worth of product in four vaults “with possibly the largest Level 10 vault in existence,” St. Louis said. He noted the company is building a “super-vault” that will be self-divided into laboratories, packaging and warehousing.

Money for medical

With all the attention on anticipated rec legalization next year, it’s easy to forget that the medical marijuana market in Canada is still exploding.

The number of Canadians legally registered to purchase medical marijuana tripled to 167,754 by March 31 from 53,649 one year earlier, according to data from Health Canada.

Andrea Hill – a corporate lawyer with SkyLaw Professional Corp., a Toronto-based law firm – said some companies are ramping up to ensure they can supply the growing medical market.

“Regardless of the recreational legalization initiative that the federal government is going to be taking, it’s important that people who rely on cannabis for their medicine continue to have reasonable access to it,” Hill said.

Karasiuk said MedReleaf remains committed to the medical market.

Of the CA$100.7 million MedReleaf raised from its initial public offering in late May, CA$55 million will go toward manufacturing capacity expansions at its Markham and Bradford facilities.

“The medical market continues to grow,” Karasiuk said. “There’s a real need for us to have that capacity in place to deal with that.

“You’ve got patients who have come to trust your product, results from your product. We want to make sure we have the capacity to continue to service them as the patient population grows.

“When we look into the future, that continues to be a cornerstone to the business.”

Matt Lamers can be reached at mattl@mjbizdaily.com