Major Canadian bank expands focus on cannabis sector

After years of protecting the burgeoning cannabis sector at arm’s size, a few of Canada’s largest monetary establishments are warming to the nation’s MJ business, together with Bank of Montreal (BMO), which initiated analysis protection this week.

The bank’s entry into the medical cannabis sector is an indication of the business’s pure evolution and the potential for entry to further monetary merchandise, stated Max Mausner, senior analyst at Vantage Asset Management in Toronto.

“To date, virtually all the capital raised in the sector has been public equity or equity-linked securities like convertible notes,” he stated.

“But these businesses will require mortgage financing, debt financing and other more sophisticated banking products,” which aren’t presently obtainable to them from different monetary intermediaries.

The bank’s inaugural analysis report predicts the regulated market will displace 40% of the illicit market within the first yr, rising to 60% the next yr.

But BMO analysts consider that a lot of the producers – all however Canopy Growth, Aphria and Aurora, three of the most important – will contribute minimally within the early days of legalization and solely “a modest amount” the next yr.

There are presently 104 licensed producers, with 500 extra within the pipeline.

Supply is anticipated to “catch up with demand in year two” and probably exceed demand by the third or fourth yr after leisure legalization, in accordance with the report, which was distributed to the bank’s shoppers.

The BMO authors famous that preliminary demand within the regulated market will “likely be below” business estimates however will however “considerably exceed” business manufacturing.

Possible causes for decrease demand embrace:

  • Insufficient shops in some provinces, corresponding to Ontario.
  • Stores in inconvenient places, once more citing Ontario.
  • Popular merchandise within the illicit market, similar to edibles and concentrates, not initially obtainable within the regulated market.

Other takeaways from the report:

  • Cannabis cultivation will turn out to be a “low-margin, commoditized part of the supply chain and will be taken up by agriculturalists” in the long term.
  • The LP enterprise mannequin will probably focus on mental property and branding down the street.

Matt Lamers might be reached at [email protected]

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