Bookkeepers are still working on fiscal year 2017, but it’s already been a banner year for cannabis investment. According to a report from New York-based cannabis financial advisory firm Viridian Capital Advisors, marijuana companies have raised $2.7 billion in capital in 2017.
The Financial Post reports that the $2.7 billion in cannabis investment this year represents nearly triple the $937.4 million raised in all of 2016, reflecting investor optimism in the industry as more U.S. states adopt legal marijuana and Canada is set to legalize recreational marijuana in mid-2018.
While the report details marijuana investments globally, all figures reported by Viridian are converted to U.S. dollars. The totals reported extend to November 30, 2017.
“While the medical market is expected to continue to grow over the next several years, the size of the coming adult-use market is expected to far exceed that of the medical side,” Viridian Capital Advisors vice president Harrison Phillips said in a release. “Companies have been raising significant amounts of capital, primarily to increase capacity to satisfy the coming surge in expected demand.”
The Canadian market by far leads the cannabis investment market, and is responsible for nearly half the total invested. Veridian reports that $1.6 billion was raised by Canadian companies in 189 total capital transactions.
The homogenous recreational marijuana rules that apply across Canadian provinces appears to be helping Canadian firms attract cannabis investment, whereas the patchwork, state-by-state approach in the U.S., where federal prohibition has curtailed the likelihood of major stock market investment.
“Companies have continued to invest in larger facilities with more advanced technologies (LED lighting and automation for cultivation, more scientific and precise equipment for extraction, etc.), leading to increases in the average raise sizes,” Phillips said in the release.
Viridia expects the pattern to continue, particularly when Canada begins selling recreational cannabis on July 1, 2018.
“Following the launch of Canada’s adult-use market in July 2018, we expect to see a shift in activity,” Phillips predicted. “Regarding capital raises, we expect to see larger, more successful companies beginning to raise additional capital to further expand their capacities and footprints. Regarding M&A, we expect to see an acceleration in consolidation as operators seek economies of scale and synergies to remain competitive as the continued commoditization of cannabis reduces prices and margins.”
“M&A” refers to mergers and acquisitions. Canada led the international market in that department as well, as the investment firm’s Viridian Cannabis Deal Tracker listed 78 mergers and acquisitions in Canada this year, compared to 85 in the trie global industry in 2016.
(The Viridian Cannabis Deal Tracker is available for free via email, upon registration.)
Funds raised by Canadian companies have been through venture capital offerings and stock transactions.
“Most of the capital raises completed by Canadian cannabis-related companies in 2017 have been private placements (whether brokered or non-brokered) or bought deals,” Phillips said. “However, we have also tracked some Series Seed, A, and B financings as well as prospectus offerings.”
One of the most significant Canadian deals was producer MedReleaf receiving more than $100 million in financing from GMP Securities.
GMP Securities analyst Martin Landry told the Financial Post. “We believe [MedReleaf] would most likely seek to acquire/construct a new greenhouse facility in Canada (given recent industry trends), however, we note the company could also deploy some cash on international opportunities,” GMP Securities analyst Martin Landry said in a note.
Viridian is telling investors to expect current capital raising and merger and acquisition activity “to generally continue at current rates through the first half of 2018.”
But Harrison Phillips also cautioned that cannabis was still more subject to volatility than better-established industries. “Any developments related to the regulation and establishment of the coming adult-use market will likely influence the rate of capital markets activity, with positive, business-friendly news accelerating activity and negative, business-hostile news decelerating activity,” Phillips said.
Each Canadian provincial government is able to determine its own rules for recreational cannabis sales, retail systems, and regulation. Earlier this week, the provinces and the federal Canadian government came to an agreement on how Canadian marijuana will be taxed.