Canada’s marijuana stocks have been on a tear over the last couple of months, hitting record highs and doubling, even tripling share values practically overnight.
But with so many unknowns, it’s anyone’s guess which companies will emerge as dominant players once recreational pot becomes legal and the industry starts taking shape. In the meantime, investors continue to sail through unchartered waters.
Looking for a guiding light? Follow the money. Companies with strong cash positions not only signal an ability to meet current obligations and expenses, but when it comes to financing and bought deals —big blocks of stock bought by entities like investment banks who then sell the shares to clients— all that money in the bank is a sign of confidence from major investors that a particular company has what it takes.
And so far, the month of January has been extra sweet to Canada’s pot companies. MedReleaf Corp. (TSX:LEAF) is a case in point. Only weeks after securing an agreement to become Shoppers Drug Mart’s second supplier of medical marijuana (Aprhia signed on with Shoppers earlier in December), the Markham, Ontario-based company just announced a bought deal co-led by underwriters Canaccord Genuity and GMP Securities for five million shares worth $132.5 million. The prospectus offering comes with a greenshoe option for an additional 750,000 shares ($19.8 million), making for a grand total of $152.3 million.
That cash infusion would be news in itself, but it comes on the heels of MedReleaf’s closing on another financing round last month —that one for $100.5 million. The end result is a company sitting on a very big pile of money.
But that’s not even the biggest financing round scored by a Canadian pot company. That honour would go to Aurora Cannabis (TSX:ACB), which last week announced a prospectus to raise $230 million in bought deal financing, led by Canaccord Genuity and including an option to purchase an additional $30 million.
Aurora CEO Terry Booth said that the deal was “a tremendous vote of confidence in Aurora’s business strategy, consistent execution and accretive deployment of resources.” Booth said, “Our unparalleled balance sheet, capital markets strength, and consistently decreasing cost of capital position us ideally to execute on multiple attractive opportunities in Canada and around the world.”
To make Aurora’s position even more eye-popping, the new deal is in addition to the roughly $600 million the company is said to have already raised over the past year.
A third pot company that just scored big would be Leamington, Ontario’s Aphria (TSX:APH) which last week closed on a $115 million financing round led by Claurs Securities, which comes after a $92-million bought deal from this past November. In addition to the Shoppers Drug agreement, Aphria recently announced a new partnership with greenhouse grower Double Diamond, which the company says will add 120,000 kilograms more of cannabis production per year.
Not to be outdone, Gatineau, Quebec’s The Hydropotherapy Corporation (TSXV:THCX) yesterday announced a bought deal for 32.5 million shares at $4.00 per share, with an over-allotment for another 15 per cent to bring the proposed total to $149.5 million. Expected to close at the end of the month, the deal will help The Hydropothecary expand its sights beyond the province of Quebec, says CEO Sébastien St. Louis. “With the capacity the markets are giving us … now we can start to turn our attention to the rest of Canada,” St. Louis said to the Ottawa Business Journal.
Finally, just today Organigram Holdings (TSXV:OGI) out of Moncton, New Brunswick, has announced a $100 million bought deal for 100,000 convertible debentures through investment banker Eight Capital. The deal includes an option for an additional $15 million, with a closing date set for January 31.
But what about Canopy Growth Corp. (TSX:WEED), you ask? With a leading market cap just passing $8 billion, Canopy boasts being the first Canadian pot company to get a bought deal, way back in 2014. Yet the company hasn’t taken part in the recent financing frenzy — instead, its big show came last October when the company sold 18.8 million of its shares to international alcohol giant Constellation for a 9.9 per cent stake in the company. That price tag was $245 million.