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The Bank Of Montreal Is Entering The Cannabis Industry

The Bank Of Montreal Is Entering The Cannabis Industry


The Bank Of Montreal Is Entering The Cannabis Industry

Haydn Blackey/Flickr

The Bank Of Montreal Is Entering The Cannabis Industry

The Bank of Montreal’s latest move signals that it’s taking the legal cannabis market seriously. 

The Bank Of Montreal is entering the cannabis industry after already securing a spot as Canada’s number two firm on advising cannabis mergers and acquisitions. Their latest play is a signal to clients that the bank plans on continuing its aggressive pursuit of Canada’s legal cannabis market, which is set to explode later this summer when adult use becomes legal nationwide.

Bank Of Montreal Initiates Research Coverage Of Canada’s Cannabis Industry

Bank of Montreal cut its teeth advising on a few major cannabis industry transactions earlier this year. Now, BMO is preparing to take the plunge into lending.

And that’s good news for Canada’s marijuana industry, which has been starved of many of the financial products critical to a successful enterprise.

“To date, virtually all the capital raised in the sector has been public equity or equity-linked securities like convertible notes,” said Max Mausner, senior analyst at Vantage Asset Management in Toronto.

But marijuana businesses sometimes require other, more sophisticated banking products, in addition to mortgages and debt financing.

There are over a hundred licensed cannabis producers in Canada already. Hundreds more are in the application process.

But BMO is only taking a look at a few of them. Notably, Canada’s largest producers, including Canopy Growth Corp. and Aurora Cannabis Inc. BMO’s analysis suggests most other producers will contribute minimally to the growth of the legal market.

The major takeaway from the report is that BMO ultimately sees cultivation tending to a low-margin sector of the industry once supply exceeds demand, likely in two years. In the future, the firm’s strategy will likely pivot to branding and intellectual property. The firm sent out its data to clients this week.

The Bank Of Montreal Is Entering The Cannabis Industry

For years, major financial institutions have maintained a safe distance from any involvement with legal marijuana businesses. Federal laws prohibiting cannabis commerce simply make such a prospect too risky for banks. Their charters depend on compliance with federal statutes. In short, no doing business with illegal entities.

As a result, cannabis companies have been losing out on access to a number of key financial products for businesses. Things like loans, financing, investment products, even savings.

But the fast-paced and unpredictable nature of the cannabis market in North America, not to mention the laws surrounding it, has also made banks wary of lending to businesses.

But that doesn’t mean the big financial firms haven’t kept a keen eye on the cannabis sector. Several have already tested the waters.

The Bank of Montreal, for example, began making forays into Canada’s medical marijuana industry in January. First, it brokered a C$200.7 million stock deal with Canopy Growth, representing “the first time a major Canadian bank-owned brokerage has participated in a cannabis securities issue,” according to the BCMI Cannabis Report.

Since then, the firm has moved aggressively. In May, Bloomberg reported that BMO Capital Markets won a mandate to be the exclusive advisor to Aurora‘s C$2.9 billion bid to buy MedReleaf Corp.

The Bank of Montreal is entering the cannabis industry. And its latest move signals that one of Canada’s largest financial firms is taking the legal cannabis market seriously.

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