Pair of Canadian marijuana firms eye initial public offering

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Canadians are five months away from being able to legally spark up a joint, but the party has already started in the cannabis industry, with two marijuana producers planning to go public in coming weeks.

Ahead of the government's July 1 date for federal legalization of recreational marijuana, The Green Organic Dutchman Holdings Ltd. plans to file for an initial public offering (IPO) in early February that values the company at about $750-million. The company, known as TGOD, is Canada's largest privately owned producer, and estimates it will grow 116,000 kilograms of cannabis annually at facilities in Hamilton and Montreal.

TGOD raised $112-million in the past two months through private transactions in which investors paid $1.65 for one common share, plus half a warrant. Sources familiar with the IPO say TGOD will sell shares at $4 each. They say they expect investment banks Canaccord Genuity Group Inc. and PI Financial Corp. to lead the TGOD offering. A spokesperson for TGOD could not be reached for comment.

The spike in the price of TGOD shares reflects the recent stock market rally for all things cannabis. As recently as last November, a study by Echelon Wealth Partners Inc. showed Canada's publicly listed cannabis companies traded at a multiple of approximately nine times their forecast 2019 earnings before interest, taxes, depreciation and amortization (EBITDA). In recent weeks, the marijuana sector took flight, and stocks changed hands last week at more than 20 times their forecast 2019 EBITDA.

Tilray, based in Nanaimo, B.C., produces about 20,000 kilograms of cannabis annually, and is expected to go public by the end of March, according to the sources. The company was founded in 2013, and in the past, it tapped federal government financing for medical-marijuana research. Tilray is controlled by Privateer Holdings Inc., a Seattle-based private equity fund that focuses on backing cannabis companies and recently raised $100-million (U.S.) for a new fund.

The rally in marijuana stock prices and the two planned IPOs come at a time when retail investors are pouring capital into the sector, and institutions are showing interest. Investment bank Canaccord held its second annual cannabis conference in Vancouver last Wednesday, and drew 600 investors and presentations from 28 companies, compared with just 11 presenters last year.

Newly minted institutional investors include a pair of cannabis-focused exchange-traded funds (ETFs), the Horizons Marijuana Life Sciences Index ETF and the ETFMG Alternative Harvest ETF, which together have committed $1.4-billion to the sector, with much of that cash flooding in over the past month.

"By allowing easy access to a broad portfolio of cannabis stocks to retail investors in Canada and the U.S., these ETFs appear to have played a meaningful role in the sector's recent rally," said a report published on Monday by analyst Vahan Ajamian at Beacon Securities. He said: "Money is clearly pouring into the sector from across the continent as investors are appreciating the opportunity ahead."

More marijuana-laced ETFs are in the works, with paperwork filed recently for offerings that focus on smaller public and private marijuana companies. The two new offerings are the Horizons Junior Marijuana Growers Index ETF and The Marijuana ETF, which will trade under the symbol "SEED."