We saw more signals this week that institutional investors are stepping off the sidelines and making bets on cannabis – with action from of Bank of NY Mellon, Bank of America Merrill Lynch, Tiger Global Management and others.
Here’s a recap of the top newsmakers and deals that caught our eyes here at Investor Intelligence – plus a look at what we’ll be watching for next week:
Merrill Lynch launches cannabis coverage
Bank of America Merrill Lynch deepened its interest in the cannabis industry by initiating coverage of the sector, less than a year after it financed Constellation’s multibillion-dollar investment in Canada’s Canopy Growth.
The firm also waded into the debate over how to properly assign valuations in the nascent industry, noting, “We believe (enterprise value)/sales is the most appropriate valuation methodology for the cannabis industry at this stage of its development.”
But Merrill Lynch’s analyst doesn’t expect that measure to last long – and even noted that Canada’s market maturity may have moved it into a space where enterprise value/EBITDA is a better assessment.
MJBizDaily International Editor Matt Lamers broke down other key highlights from the research report by Merrill Lynch analyst Chris Carey, who estimated that a “global $166 billion industry is emerging from the shadows” – with the U.S. accounting for 34% of the total addressable global cannabis market.
BNY Mellon gets in, too
Bank of NY Mellon will act as custodian bank to a new cannabis-focused exchange traded fund (ETF) – marking the first time a New York Stock Exchange marijuana-related fund has seen backing by a major institutional bank.
The AdvisorShares Pure Cannabis ETF, which will trade under the ticker symbol YOLO, will have 80% of its assets in companies that derive a minimum 50% of revenue from cannabis operations, according to ETF.com.
The fund plans to track cannabis-related companies in Canada and the United States, even though the federal prohibition in the latter remains in force. To get around this, the ETF will avoid inclusion of plant-touching companies in the U.S.
Pax Labs inks $420M raise
Vaporizer maker Pax Labs drew in big-name institutional investors to its blockbuster $420 million raise, including New York-based Tiger Global Management, San Francisco-based Tao Capital Partners and Prescott General Partners of Boca Raton, Florida.
As we noted in our Rapid Reaction to subscribers on Monday: The vape sector could be an attractive segment for investors who may still want to shy away from the perceived risk around plant-touching companies.
The $420 million figure nearly doubled the previous high for a U.S. cannabis company, a $250 million debt financing by California-based multistate marijuana operator MedMen in March. It was also almost four times higher than the $125 million raised by Flow Kana in February, then a record for a privately held cannabis company.
- April 30-May 1: Toronto-based Flower One Holdings (CSE: FONE) is slated to report its fourth-quarter and full-year earnings Tuesday after the market closes, with a conference call on Wednesday at 8:30 a.m. ET.
We want your feedback!
As an early subscriber to Investor Intelligence, your experience with us is highly valued and highly valuable! We would love your feedback.
Please feel free to email me directly at [email protected] with your thoughts on what you value most from your subscription and what more you would like to see.
Looking forward to hearing from you!
With that, enjoy the weekend!
Editor, Investor Intelligence