The first-ever U.S. bank-led cannabis equity offering isn’t doing well. In fact, shares of CannTrust Holdings fell as much as 14 percent in New York on Thursday (May 2), marking the sixth day of declines and the lowest level since January.
The decline came after the Ontario-based company announced on Thursday that it will price its equity offering at $5.50 a share, 23 percent below its closing price before the offering was announced, and 54 percent below its high on Oct. 16. As a result, CannTrust’s market value fell below $600 million.
Bank of America Merrill Lynch, Citigroup, Credit Suisse and RBC Capital Markets are the lead book runners for the equity offering, which is set to raise $170 million before expenses. However, one analyst said the offering was too big for a company with a small market value.
The book runners involved led investors to assume that the equity offering “was going to price very tight and be placed very well.” Yet, Justin Ort, CEO of Measure 8 Venture Partners (which shorted CannTrust stock), said according to Bloomberg, “As it turns out, a $200 million offering on a $650 million market cap is a lot to ask, and investors demanded a big discount.”
As many states have embraced legal marijuana use, the U.S. government is looking to clarify issues regarding payment. Despite 47 states having some form of legalized marijuana for sale, the legal cannabis industry is in a state of potentially dangerous uncertainty when it comes to financial services.
The U.S. is not the only place where legal cannabis faces a problem of moving away from cash and into the full world of digital payments. A similar situation exists in Canada, where the market could reach as much as $5.1 billion in annual sales by 2020, according to one estimate — though some predictions are higher, especially those that include spending on accessories and growing supplies.