Advantages of the Canadian Public Capital Markets in the Cannabis Space The Canadian Cannabis Ecosystem. May 2018

Transcription

1 Advantages of the Canadian Public Capital Markets in the Cannabis Space The Canadian Cannabis Ecosystem May 2018

2 Why Canada? Legal and regulatory uniformity nationally for cannabis Cannabis legislation tabled full adult use anticipated in mid-late 2018 Capital markets have been very favourable to cannabis industry companies slide 2

3 Why Canada? Canada has been a recognized leader in cannabis for over a decade Exponential growth of investment capital being allocated to the growth of the industry Cultural and social support for the cannabis industry slide 3

4 American Capital Markets Challenges Cannabis is still listed as a Schedule I narcotic Segmented State recreational and medicinal cannabis laws Uncertain political climate Cole Memorandum rescinded by the Attorney General in January 2018 creating further concern Challenges accessing capital and investment Challenges receiving corporate tax breaks slide 4

5 American Capital Markets Challenges Significant banking issues Low R&D investment, partially because patents are federally issued Challenges with using legitimate auditors, creating difficulty in reliable public reporting slide 5

6 Canadian Cannabis Public Market Overview Top five companies by market cap: 1. Canopy Growth Corporation ($5.66 billion)¹ 2. Aurora Cannabis Inc. ($4.56 billion)¹ 3. Aphria Inc. ($2.11 billion)¹ 4. MedReleaf Corp ($1.52 billion)¹ 5. The Cronos Group ($1.51 billion)¹ Canadian cannabis companies have already raised $2.52 billion in 2018, according to Viridian Capital Advisors 2 1 As of market close on April 23, Viridian Capital Advisors, Cannabis Deal Tracker Summary for the Week Ended April 13, slide 6

7 Canadian Cannabis Public Markets High volume of analyst reports and trading activity 89 publicly listed cannabis companies on Canadian exchanges (TSX, TSXV and CSE) 46 publicly listed cannabis companies in Canada with a market cap of over $100 million 37 publicly listed cannabis companies with U.S. operations slide 7

8 Canadian Cannabis Public Markets Most Canadian publicly listed companies were taken public with small market cap, and have experienced significant subsequent growth in their market capitalizations Institutional and boutique Canadian investment banks, as well as venture capital and private equity firms, have been very active in the cannabis space, allowing companies to reach high valuations slide 8

9 The Attraction of U.S. Cannabis Companies to the Canadian Public Markets Under current market conditions, U.S. cannabis companies with meaningful revenues might anticipate a favourable reception by Canadian investment bankers, given that Canadian cannabis companies are trading and being financed on the basis of future revenue expectations slide 9

10 Main Drivers for Going Public Listing in Canada provides strong exposure to the Canadian public capital markets and facilitates partnerships, joint ventures, deals, capital, and international opportunities Easier regulatory scheme to navigate compared to the U.S., and will likely more closely resemble new international market opportunities Liquidity for investors High valuations being achieved in Canadian market Strong market coverage Leading regulatory scheme under the ACMPR slide 10

11 Keys to Success in Cannabis Industry Capital investment and market share are available for companies with long-term strategic vision, knowledgeable and capable advisory teams, as well as strong market and brand awareness Resources, knowledge, and human capital required to overcome regulatory and legal issues, challenges related to financings, and the development of strategic partners in various areas including extraction, operations, distribution, and commercial cultivation slide 11

12 Keys to Success in Cannabis Industry Creating opportunities for patients, investors, entrepreneurs, medical professionals, businesses, and industry stakeholders in Canada to meet, network, do business, and educate themselves slide 12

13 The Canadian Securities Exchange (the CSE ) The CSE is a trading platform that currently has 63 public cannabis companies listed slide 13 The CSE mandates corporate disclosure and regulatory filings and provides extensive information on trading activity and stock performance The CSE s website: thecse.com/en/listings has a tab setting out the CSE Cannabis Stock List On October 16, 2017, the CSE issued a staff notice clarifying its position that it welcomes listing applications from issuers that have or are currently in the process of developing exposure to cannabis-related activities in the States that have legalized such activities

14 The Canadian Securities Administrators ( CSA ) The CSA is an umbrella organization of Canada s provincial and territorial securities regulators that is responsible for developing a harmonized approach to securities regulation across the country On February 8, 2018 the CSA published a staff notice setting out the CSA s disclosure expectations for specific risks facing issuers with cannabis-related activities in the U.S., taking into account the rescission of the Cole Memorandum slide 14

15 The Canadian Securities Administrators ( CSA ) The February 8 notice includes additional disclosure expectations that apply to all issuers with U.S. cannabisrelated activities, including issuers: With direct and indirect involvement in cultivation and distribution; and Who provide goods and services to third parties involved in the U.S. cannabis industry Based on the February 8 notice, issuers with U.S. cannabis-related activities should be able to complete an RTO or file a prospectus, provided they comply with the enhanced disclosure requirements slide 15

16 Case Study: Cannex Capital Holdings Inc. Based in Vancouver, BC with operations in Washington state; Cannex is the largest cannabis player in Washington with over $3 million in sales in January 2018 Market focus: 60% U.S., 20% Canada, 20% overseas Cannex went public by way of a reverse-takeover of Arco Resources Corp. (the RTO ), formerly listed on the NEX tier of the TSX-V The RTO was structured as a three-cornered amalgamation among Cannex, Arco, and a wholly-owned subsidiary of Arco slide 16

17 Case Study: Cannex Capital Holdings Inc. Concurrently with the RTO, Cannex completed a $48 million private placement offering of subscription receipts led by Beacon Securities Limited Cannex currently trades on the CSE under the symbol CNNX slide 17

18 Cam Mingay, Senior Partner Cassels Brock & Blackwell LLP Suite 2100, Scotia Plaza Suite 2200, HSBC Building Suite 1250, Millennium Tower 40 King Street West 885 West Georgia Street 440 2nd Avenue SW Toronto, ON Canada M5H 3C2 Vancouver, BC Canada V6C 3E8 Calgary, AB Canada T2P 5E9 Tel: Tel: Tel: Fax: Fax: Fax: CASSELS BROCK & BLACKWELL LLP. ALL RIGHTS RESERVED. This document and the information in it is for illustration only and does not constitute legal advice. The information is subject to changes in the law and the interpretation thereof. This document is not a substitute for legal or other professional advice. Users should consult legal counsel for advice regarding the matters discussed herein.