The Viridian Cannabis Deal Tracker reported that cannabis investments have reached $1.23 billion within the first 5 weeks of the year alone. This is a huge jump compared to the $178 million poured into the industry during the first 5 weeks of 2017, signifying rapid growth.
The investments of January alone eclipsed the investments seen in all of 2016, which reached $1.29 billion. Most of the investments went to retail and cultivation companies, a market that is dominated by Canadian individuals.
“We are seeing a steady maturation of the capital markets around the cannabis industry,” Harrison Phillips, Viridian Capital Advisors VP told Benzinga. “Early on, it was almost entirely high net worth individuals – and maybe a few family offices – investing in the cannabis space. Now, we are seeing more family offices getting involved, more high net worth individuals, more professional investors getting involved.”
There’s no doubt that the demand for cannabis products is up, so it’s a good time for investors to cash in on the green rush.
Aggregate data from Benzinga reveals that there were 65 capital raises during the first 5 weeks of the year, twice as much as last year. Out of these 65, 9 investment raises exceeded $50 million, and 87.6% of the raises were backed up by equities.
Benzinga also reports that the size of the average raise was $19 million, up from the $5.9 million of last year. Around 72% of raises were done through publicly traded organizations, a 4% decrease from last year.
“Historically, it was mid-to-high teens; today we are seeing far lower interest rates, especially for companies with a long operational histories or strong balance sheets,” Phillips says. “I have seen some debt-back raises now done with the interest rates in the mid-to-high-single digits. That shows material improvement in the comfort levels of the investors getting into the space.”
The largest investments went to these companies:
- Hydropothecary Corp: $121.1 million
- MedReleaf Corp: $107.6 million
- Privateer Holdings: $100 million
- Cannabidiol 4 Hemp Engineering Co., Ltd: $93.4 million
- Organigram Holdings Inc: $91.9 million
“This has been happening pretty consistently from late 2016 through 2017,” Phillips adds. “This reflects the necessity to scale cannabis businesses, to get some kind of advantage, and explore strategic opportunities, both through acquisitions and international expansion.”
Big Alcohol Enter Cannabis Market
Constellation Brands Inc.’s strong beer portfolio looks like it will be spurred even more through legal cannabis products. Last October, Constellation Brands acquired a minority stake in Canopy Growth Corp., a Canadian cannabis product manufacturer.
According to Macquarie analyst Caroline Levy, around $10 million of the estimated $35 million tax reform cash benefits of Constellation will be poured into cannabis product development. Many believe that the move makes sense for an alcohol producer such as Constellation, especially considering that Canada is due to legalize cannabis federally sometime this year. Constellation “expects that beverages will be legal soon thereafter”, according to Bill Newlands, Chief Operating Officer of Constellation Brands.
“This past year, we brought 40% — 40% of the total growth at retail in the alcohol beverage space, more than the next several players combined,” he says. There is a possibility that Constellation may be able to use its expertise in the alcohol industry to dominate the legal cannabis market next.
“Our goal with this organization is to work collaboratively to both understand the cannabis business, but also develop unique cannabis-based beverages that will be available around the world as legalities prove those to be an option,” Newlands adds. He also says that based on Constellation estimates, the cannabis market in the United States alone could be worth $50 billion in business.
“That’s half the size of our beer business,” Newlands said. “That’s a pretty big business.”
Canopy Growth is the stock of choice for many investors. The company is Canada’s dominant player in cannabis production, and has almost 30% of the share in the medical cannabis market. Canopy Growth is set to reap the benefits of recreational legalization in Canada later this year, which will reward investors handsomely.
Currently, Canopy Growth offers 45 cannabis products on its Tweed Main Street website, including soft gel caps, dry flower, and oils. They operate on a 600,000 square foot licensed greenhouse and indoor facility, boasting of having more production space than any competitor in Canada.