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Canada’s Marijuana Legalization Entices Smaller Financial Players

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While legal marijuana companies in the U.S. struggle to gain access to financial services, their industry peers north of the border are enjoying an investment boost from smaller financial companies.

Reports this week in CNBC highlighted the nearly $1 billion in equity offerings by Canadian marijuana firms last year — a new record, the publication said, citing data from Thomson Reuters. Nearly two-thirds of that money came in during the fourth quarter.

Small, independent brokers are jumping into the industry, as Canada plans to legalize the drug this year, with these players securing underwriting fees and, in some cases, warrants that become more valuable as marijuana company stock values increase.

CBNC pointed to BMO Capital Markets, which facilitated a $161.3 million raise by Canopy Growth, the nation’s largest marijuana producer. But there are smaller financial firms participating in the action as well.

“The smaller, independent brokers are fairly opportunistic and good at jumping on trends, so crazed market activity in anything to do with cryptocurrency and marijuana plays right into that ability,” said SW8 Asset Management President Matt Skipp in an interview.

“To the extent that you want to buy a business that is pretty transparent, with proper cash flows and a business that you understand and like, some of these independent brokers could be a play on the kind of activity that has been going on,” stated Diana Avigdor, Barometer Capital Management head of Trading.

Despite brokers’ embrace of the market, there remains uncertainty around how banks will follow suit; reports said traditional financial institutions (FIs) are likely to focus on larger cannabis companies and could shy away from smaller startups in the industry.

In 2016, several large banks decided to close accounts they had provided to marijuana businesses in Canada, including Scotiabank and Royal Bank of Canada.

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