Pubdate: Thu, 18 Aug 2016
Source: National Post (Canada)
Page: FP2
Copyright: 2016 Canwest Publishing Inc.
Contact: http://drugsense.org/url/wEtbT4yU
Website: http://www.nationalpost.com/
Details: http://www.mapinc.org/media/286
Author: Barry Critchley

MARIJUANA ISSUES HIT NEW HIGH

The U.S. and Canadian equity markets are currently enjoying different 
types of highs.

In the U. S., the three main stock market indexes are hitting levels 
not seen before while in Canada it is investors' interest in medical 
marijuana stocks that is setting records.

Consider this: Over the past three weeks, six local companies raised 
$124.5 million of equity capital. To put that number in perspective, 
$124.5 million makes this the busiest quarter on record and almost 
six times what was raised in the second quarter.

Another perspective: The financings are more than half the amount 
marijuana-focused companies have raised in total since the first 
quarter of last year. That group of companies has, according to 
information prepared by FP Data Group, raised $206.6 million over the 
last 20 months, through 13 separate transactions.

The new issue rush hasn't occurred randomly. The deals have occurred 
after Ottawa announced steps toward legalizing and regulating 
marijuana with the new system being developed by a task force with 
public consultation.

So what do we know about the marijuana financings?

The deals have ranged from $30 million (an amount raised by both 
Canopy Growth Corp. and Aphria Inc.) to $6.5 million raised by 
International Cannabis Corp. Canopy, which grew out of Tweed Inc., 
the industry pioneer, is the sector's largest company with a market 
of $425 million. International Cannabis (ICC) is the sector's newest 
entrant and emerged following a reverse takeover with Shogun Capital 
Corp. (That reverse was Shogun's so-called qualifying transaction.) 
ICC is headquartered in Uruguay, which legalized state-controlled 
sales of cannabis in late 2013.

Between the extremes of Canopy and ICC are financings by Aurora 
Cannabis Inc. ($23 million), OrganiGram Holdings Inc. ($20 million) 
and Mettrum Health Corp. ($15 million).

Because of strong demand the deals have been upsized. In percentage 
terms the upsize ranges from a low of 14.3 per cent (OrganiGram) to a 
high of 50 per cent (Mettrum).

As with normal corporate financings, issues of the marijuana group of 
stocks come with a discount. Relative to the five-day volume weighted 
average price, the concession ranges from 2.7 per cent (Canopy) to 
9.8 per cent (Mettrum.) The discount relative to the issuer's last 
trading price is larger ranging from 11.6 per cent (Canopy) to 19.3 
per cent (OrganiGram). One possible explanation for the difference 
between two discounts is that to place larger amounts of equity, 
issuers bow to investors' demands for healthy concessions. Another is 
that somehow the market hears about a deal and then sells off quickly.

The issuers are not loath to issue healthy amounts of stock. Using 
the measure, the size of base offer to market cap, issues have ranged 
from 7.7 per cent (Canopy) to 33.2 per cent (Aurora).

Since the first quarter of 2015, seven marijuana issuers have raised 
capital in 13 separate financings. Canopy (four deals for $77.6 
million in proceeds); Aphria (two for $41.5 million); OrganiGram (two 
for $30.4 million); and Mettrum (two for $23.6 million) have been to 
the markets on multiple occasions.

A small group of dealers tend to dominate the financings. Of the six 
deals this quarter, GMP and Dundee Securities were each the lead/book 
runner on two deals, with Clarus, Canaccord and Cormark each leading 
one transaction;

The six latest deals come with healthy fees. The fees range from 5.75 
per cent (Canopy) to seven per cent (Aurora and ICC). In total, 
almost $7.7 million has been generated for the agents.
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MAP posted-by: Jay Bergstrom