Why Smaller Banks Take Bigger Slice of the Growing Medical Marijuana Business

Article by Sunny Freeman, Financial Post

Why are smaller banks taking a bigger slice of Canada’s medical marijuana business?

The buzz around the cannabis business in 2016 reached an inflection point with medical marijuana companies raising more than $466 million on Canadian capital markets last year.

Two years into Canada’s commercial medical marijuana market, companies have investor attention. Several players raised millions of dollars in multiple rounds of financing. One launched an IPO on the Toronto Stock Exchange. Canada’s biggest marijuana company even hit a billion dollar valuation.

“It’s the biggest year so far and I expect in 2017 you will see a bigger year,” said Graham Saunders, head of capital markets origination at Canaccord Genuity, which led seven of the 22 capital raises in the sector last year.

The massive year for marijuana financing comes in anticipation of a legal Canadian recreational market, expected to be in place by 2019 and worth some $6 billion a year by 2021. It also came without the participation of the big banks, which refuse to finance marijuana companies for fear of reputational risk.

Many of the big banks have ties to the U.S., where medical marijuana remains illegal at the federal level, even though several more states voted to legalize pot during the November U.S. election. The disconnect sent more U.S. investors seeking exposure to the market north of the border.

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