Marijuana stock market investors are wringing their hands with glee as their financial portfolios continue to sky-rocket, and with Canada expecting to join the legal gravy train by mid-year their future prospects are looking even rosier
Up until now, the banking world has side-stepped the huge amount of cash flow generated by the weed industry but with Canada poised to become the first-ever first world country to legalize marijuana, one of the country’s top five banks has come out in open support of this new-age phenomena.
Banks and Pot Have Not Mixed
Banks and marijuana have not mixed because while several States in America have decriminalized pot, the federal government still regards the substance as an illegal and dangerous drug. The financial world, therefore, has given marijuana a wide berth for fear of stepping on federal toes and incurring fines or even criminal charges. But with Canada more than likely to “go green” by mid-2018, the Bank of Montreal and GMP Securities took the bull by the horns and bankrolled a $175 Canadian dollar deal with one of that country’s leading marijuana growers – Canopy Growth. This substantial 5 million shares offering could pave the way for a wave of change in the future marriage of banks and cannabis.
To date, Uruguay is the only country in the world to legalize pot but now that Canada looks more than likely to give its proposed Cannabis Act the nod in June, Wall Street pundits are growing increasingly optimistic about their investments sky-rocketing in the near future. In fact, the predictions being bandied about estimate sales of marijuana growing three-fold over the next 24 months.
Plans for Expansion
While excitement mounts and investors start counting their expected lucrative pot-haul, Canadian marijuana growers are hard at work with production expansion programs. In fact, two of the country’s major growers, Canopy Growth Corp as well as Aurora Cannabis, are planning on producing more than 400,000 kilograms of weed every year. In total, growers in Canada will produce an estimated two million kilograms of weed by the end of 2021.
Taking a look at the current situation, several Canadian growers already own or have obtained additional land for expansion. Canopy Growth is planning a 5.7 million-square-foot production line, while Aurora Cannabis has obtained 71 acres of land in Alberta on which it plans to build a 1.2million-square-foot production facility. The picture becomes very clear when assessing these developments. Future weed production will need substantial financing and this can only be achieved when, or if, Canada legalizes cannabis and banks join the gravy train.
Open Banking is the Final Hurdle
Canopy Growth’s CEO, Bruce Linton, is on record as saying that he expects the majority of Canadian banks to open their doors to the marijuana industry by mid-2018, and describes this predicted advent as “the final hurdle” that will be overcome by cannabis traders.
These are the advantages Canada’s marijuana industry players can look forward to if banks open lines of credit and enter into debt deals:
- They will have the necessary cash flow with which to buy more product
- To make acquisitions
- To embark on expansion programs
- To employ more staff
On the other hand, banks will enjoy a resurgence of economic revival as sales of marijuana soar. Annual stock sales, alone, are expected to pad the coffers with an additional $5 billion-plus annually.
Investors Dread “Bought-Deal” Offerings
But there is always a downside and the one that investors most dread is “bought-deal” offerings that dilute stock values. This scenario can be best explained by the Bank of Montreal’s five million shares offering of Canopy Growth that dilutes existing share values – diluting their value by making them more readily available.
While Canada gears up for its momentous mid-year cannabis decriminalization act, in reality, legalized sales of marijuana to adults in the country is not expected to start until August or September. This will give dispensaries enough time to obtain product from growers to stock their retail outlets.
In the interim, the Canadian stock market is attracting a huge amount of interest and investment in marijuana stocks from pundits who are expecting to reap substantial financial rewards from this new-age industry.
As the D-Day count-down begins, Canada’s marijuana industry players are hard at work ramping up their infrastructure to ensure that stock will meet demand when retail outlets open their doors to a hungry adult recreational pot market.