Weekly Wrapup: Beyond the headlines of the week ended April 26, 2019

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.

Carey’s coverage includes Canadian cannabis leaders: Aurora CannabisCanopy GrowthCronos GroupThe Green Organic DutchmanHexo Corp. and Supreme Cannabis.

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.

Next Week:

  • 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.

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Lisa Bernard-Kuhn

Editor, Investor Intelligence