Cannabis capital ‘rotating’ away from Canada to United States, analyst says


2019-05-31 20:11:00 Marijuana Business Daily


Marijuana businesses and investors seeking higher returns and more potential are looking beyond Canada’s relatively small and highly regulated market, according to analysts covering the still-nascent industry. “Many investors we have spoken to have begun to rotate capital from Canada to the U.S. on the fear that Canadian players will be unable to capture growth south of the border,” CIBC World Markets analyst John Zamparo wrote in a research note about Canopy Growth’s conditional acquisition of New York-based Acreage Holdings for an industry-record $3.4 billion. CIBC World Markets is a subsidiary of the Canadian Imperial Bank of Commerce. Zamparo said investors started looking south of the border after Canadian cannabis stocks went on a tear earlier this year. “I think the impetus for that has been the valuation divergence between the two countries. That’s starting to close a little bit, but it still certainly exists,” Zamparo told Marijuana Business Daily. He said there are quality businesses down south that people want exposure to, and those generally come at a slightly cheaper price than businesses based in Canada. “I don’t see an end to the movement from Canada to the U.S. soon, but that doesn’t mean the successful Canadian companies are not going to be well capitalized,” Zamparo said. Bank of America Merrill Lynch – which recently initiated coverage of the cannabis sector – estimates that Canada makes up just 3% of the global cannabis industry. Attractive U.S. targets Zamparo said the legal status of cannabis in the United States is seen as a “temporary inconvenience” for a lot of investors, “and once there are indications that the laws are going to change federally, you’ll see a significant expansion for U.S. names.” As a result, Canadian companies are going after targets that provide differentiated services or intellectual property – such as Canopy’s acquisition of U.S.-based hemp firm Ebbu. There have also been examples of companies buying American assets on the condition there is a reversal of Washington’s national cannabis ban. U.S. assets that have strong potential outside North America have also attracted interest. “Sometimes it’s just exclusive of their U.S. operations. Canopy Rivers has deals with Headset and another with LeafLink, which is a B2B platform,” Zamparo said. “For Leaf Link, the deal was for their international operations, not their U.S. operations.” Risk of capital diversion? Canadian companies are getting the capital they need “for now.” “A lot of the cultivators are well capitalized, but there are several that appear to be better capitalized than they truly are once you factor in their buildout plans in the next six to 18 months,” the analyst said. And some of the companies may experience challenges in refinancing when they need more capital to grow different parts of their businesses. But as the industry evolves, traditional forms of financing will become more common for cannabis firms. Bank debt, for example, has been utilized by many more cannabis businesses today than in the past for fuel expansion. “The traditional convert deal, whereby companies raise X amount of dollars with a conversion option and throw in warrants to investors, we’re seeing fewer of those,” he said. “That’s a sign that investors have largely deployed a lot of the funds they’re going to deploy in the capital space, and secondly it’s because the industry is starting to mature and see more traditional forms of financing.” Funding also will be more tied to performance in the coming months than it has in the previous few years. “It depends on performance. I think if Canadian companies can start demonstrating competence in this industry and building out international operations, it will signal to investors they’re moving forward in a thoughtful way,” Zamparo said. Capital still needed  In the Canadian market, areas that could draw attention from investors include retail, extraction and, to a lesser extent, cultivation businesses. “The biggest and strongest of the sector probably don’t need additional capital for cultivation purposes. But we’re learning as an industry that this plant is a lot more challenging (to grow at scale) than people thought,” he said. “I think in general that’s probably true across the industry. More capital is needed to optimize the cultivation.” Retail is still in buildout mode across the country. Any company that wants to become a nationally dominant retail chain will still likely need more capital to do it. “Other parts of the industry need financing as well. The extraction companies have been a frequent topic of conversation of late,” he said. “Derivative products are going to be key to unlocking this industry. A lot of these larger licensed producers don’t have the capacity to do extraction on their own, so many of them have outsourced it to dedicated extractions companies, who will need capital to build out their operations to address that demand.”
研究仍处于起步阶段的大麻行业的分析师表示,寻求更高回报和更大潜力的大麻企业和投资者,正把目光投向加拿大相对较小、监管较高的市场以外。 “我们所说的许多投资者开始将资本从加拿大转移到美国,担心加拿大企业将无法在边境以南地区实现增长。CIBC World Markets 分析师 John Zamparo 在一份研究报告中写道, Canopy Growth 有条件以34亿美元收购总部位于纽约的 Acreage Holdings 。 CIBC 世界市场是加拿大帝国商业银行的子公司。 Zamparo 表示,今年早些时候,加拿大大麻市场持续下跌,投资者开始关注边境以南地区。 “我认为,推动这一趋势的因素是两国之间的估值散开。这开始有点接近,但它仍然肯定存在,” Zamparo 告诉《大麻商业日报》。 他说,南部地区有高质量的企业,人们希望接触这些企业,这些企业的价格通常略低于总部设在加拿大的企业。 “我不认为加拿大很快就会结束向美国的转移,但这并不意味着成功的加拿大公司不会资本充足,” Zamparo 说。 美银美林( Bank of America Merrill Lynch )估计,加拿大仅占全球大麻产业的3%。美林最近启动了对大麻行业的覆盖。 具有吸引力的美国目标 Zamparo 表示,大麻在美国的法律地位对许多投资者来说是“暂时的不便”,一旦有迹象表明这些法律将在联邦范围内改变,你将看到美国名字的显著扩张。 因此,加拿大企业正在追求提供差异化服务或知识产权的目标,比如 Canopy 收购总部位于美国的大麻公司 Ebbu 。 还有一些公司购买美国资产的例子,条件是华盛顿的国家大麻禁令发生逆转。 在北美以外具有强大潜力的美国资产也吸引了投资者的兴趣。 “有时这只是他们在美国的业务。Canopy Rivers 与 Headset 和 LeafLink 有交易,后者是一个 B2B 平台,” Zamparo 说。 “对于 Leaf Link 来说,这笔交易是为了他们的国际业务,而不是美国业务。” 资金转移的风险? 加拿大公司正“暂时”获得所需资金。 “很多品种都有充足的资本,但有几个品种似乎比它们真正的资本要好,一旦你把未来6至18个月的建设计划考虑进去了,”分析师表示。 一些公司在需要更多资金来发展不同业务部门时,可能会遇到再融资方面的挑战。 但随着该行业的发展,传统的融资形式将变得更常见的大麻公司。 例如,与过去相比,银行债务如今被更多的大麻企业用于燃料扩张。 他表示:“传统的转换交易——企业通过转换期权筹集 X 美元,并向投资者抛出认股权证——我们看到的这种情况较少。” “这表明投资者在很大程度上将大量资金配置在资本领域,其次是因为该行业开始成熟,并看到了更传统的融资形式。” 与前几年相比,未来几个月的业绩也将更依赖资金。 “这取决于业绩。我认为,如果加拿大公司能够开始展示在这个行业的能力,并建立国际业务,这将向投资者发出信号,表明他们正以深思熟虑的方式向前迈进。” 资本仍然需要 在加拿大市场,可以吸引投资者注意的领域包括零售、开采,以及规模较小的种植业务。 “该行业规模最大、实力最强的企业可能不需要额外的资本用于种植。但我们作为一个行业正在学习,这个工厂比人们想象的更具挑战性(规模增长)。 “总的来说,我认为整个行业都是如此。需要更多资本来优化种植。” 全国各地的零售仍处于建设模式。任何希望成为全国性零售连锁企业的公司,都可能需要更多的资金来实现这一目标。 “该行业的其他领域也需要融资。最近,采掘公司一直是一个经常谈论的话题,”他说。 “衍生产品将是打开这个行业的关键。许多规模较大的特许生产商没有自行开采的能力,因此它们中的许多已将其外包给专门的采掘公司,这些公司将需要资金来扩大业务以满足这一需求。”