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After years of shutting out Canada's cannabis industry, BMO has broken the ice

"The big banks had been treating us worse than second-class citizens."

In one of the first significant signs of growing mainstream acceptance of the burgeoning Canadian cannabis industry, a “Big Six” Canadian bank led an equity financing round this week for the biggest licensed weed producer in the country, Canopy Growth Corporation.

On Wednesday, after years of shutting out Canada’s marijuana industry from the banking privileges afforded to every other legal sector, the Bank of Montreal broke the ice, co-leading the underwriting of a $175 million stock sale together with boutique investment firm GMP Capital Inc.


Companies looking to raise capital frequently issue new shares for sale — the big banks, however, have been reluctant to underwrite cannabis stocks, especially those exposed to the U.S. market, out of regulatory concern. The benefit of having a massive lending institution like BMO underwrite the raising of capital is that they have access to a greater number of institutional investors and hence, the ability of negotiating a better price for the sale of stock.

Canopy’s equity financing round was done at a price of $34.60, eight percent below the company’s closing share price on Wednesday. Canopy’s stock price surged slightly in morning trading, as news of the deal spread.

“This has been a process of five years. I’ve been telling the banks to quit treating cannabis like its still Prohibition like in some old movie,” Canopy Growth CEO Bruce Linton told VICE Money.

According to Linton, BMO’s private brokers were some of Canopy’s earliest supporters, which made it easier for the company to secure the backing of BMO for the deal. “But the big banks have been treating us worse than second class citizens for so long,” he added.

Across the sector, other company executives rejoiced. “It’s a very positive development and consistent with what we’ve been seeing as well,” Cam Battley, Executive Vice-President of Aurora Cannabis told VICE Money. “Big banks are seeing this as a big opportunity, and we think they will lead the way in equity financing this year.”


Battley refused to disclose if Aurora too might soon enlist the help of another Big Six bank to raise capital, but claimed that his company has been approached by “a number of organizations with regards to debt opportunities.”

The absence of big banks in the cannabis space has meant that capital is often raised through family offices, high net worth investors, venture capital funds, and credit unions. In a rapidly growing industry that is still struggling to break even, big injections of cash are vital. The Big Six banks possess the size and scale of capital needed to legitimately grow an industry.

“The lack of involvement of the big banks has certainly impeded the ability of the big LPs to fundraise,” said Deepak Anand, Vice-President of Government Relations at Cannabis Compliance Inc., a Vancouver-based consulting firm for companies looking to acquire a license to grow or sell weed for recreational use.

Anand claims some of the LPs he worked for even struggled to get basic bank accounts a few years ago. “There was a lack of standardization and lack of education amongst the banks such that your ability to open an account depended on your relationship with the bank.”

Linton confirms this scenario. “We opened a bank account with RBC and worked for them for two years, and then they shuttered us. It’s almost akin to a racial statement… you are marijuana people so get out,” he said.


One of the reasons Linton believes his company managed to involve BMO in raising capital is because Canopy has no holdings, or investments in the United States, where cannabis is still illegal in a few states, and at the federal level. “The banks can never say we’re going to turn a blind eye to them because we have nothing to do with the U.S.”

Canadian LPs that are involved in the U.S. market, however, will presumably still struggle to attract major lending institutions. With a market cap of $3.51 billion and millions of investment dollars in the U.S., Leamington-based Aphria Inc., falls into this category. The company, which operates in the U.S. as Aphria USA is already charging ahead in its grand plan to expand to all states that have legalized cannabis.

Aphria’s CFO Carl Merton is quick to dismiss concerns about his company’s business strategy. “Look, I think BMO getting involved is fantastic for the industry as a whole. But it hasn’t really been an uphill battle for us to raise money. We have raised $500 million without the help of a major Canadian bank.”

“Aphria is interesting because they are technically still violating federal U.S. law,” said Anand. “I think they should be cautious about investing in the U.S., because there are cross border implications,” he told VICE Money.

Meanwhile, Linton believes that this is a turning point for the Canadian cannabis industry, a coming of age of sorts — thanks exclusively, to his company. “I think the rest of the industry should be recognizing that this is the 10th to 15th time Canopy has done something that has benefited the whole industry.”

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