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Canada’s investors turn to California cannabis

Stymied by limited access to investors, the Bay Area’s ambitious cannabis companies are turning to our weed-friendly northern neighbor for help – joining forces with Canadian partners to build and expand their brands here at home.

This week two major businesses – Oakland’s Harborside and San Francisco’s Apothecarium – announced deals with Canadian investors whose government considers cannabis as legit as Tim Hortons coffee.

This represents an international tilt in the Golden State’s cannabis landscape that until recently operated in the shadows — and now needs outside funds to strengthen its financial footing.

“Right now, U.S. companies looking to access the public markets to accelerate their growth only have one option: the Canadian Securities Exchange,” said equities analyst Andrew Kessner of New York City’s William O’Neil & Co.

Demand for California cannabis is growing, said Kessner.

But because the plant remains illegal under federal law, California companies can’t access the New York Stock Exchange or Nasdaq Stock Market to raise money.

Instead, they’ve been forced to rely on wealthy individuals, family investors, hedge funds and other private sources, Kessner said.

Meanwhile, cannabis is legal in the Great White North. Some of Canada’s most prominent politicians say they’ve smoked weed, including Liberal Leader Justin Trudeau, former Nova Scotia premier Darrell Dexter and Ontario Premier Kathleen Wynne.

Last fall’s vote makes it only the second country in the world — and the first G7 nation — to allow a nationwide marijuana market. There are three major exchanges in Canada that list cannabis stocks. One, the Canadian Securities Exchange, lists U.S. cannabis businesses that are in states where cannabis is legal.

With the exchanges open to cannabis companies, Canadian companies now have access to money, said Sean McNulty, founder and principal at XIB, a Toronto-based capital markets consulting and advisory firm with a focus on the cannabis sector.  Investors are attracted to regulation, oversight and transparency not available in private markets.

“That offers companies access to retail and institutional capital at scale not seen in the U.S.,” he said.

These businesses are looking for a place to put their newfound wealth – and the Golden State, home to legendary strains like Big Sur Holy Weed and San Fernando Valley OG, offers plenty of opportunities.

“Many Canadian investors view the U.S. as one of the most compelling investment opportunities in the world,” said McNulty. “There is more cannabis activity in California than in all of Canada.”

The Apothecarium, which operates three dispensaries in San Francisco, has been acquired by the Toronto company TerrAscend in a deal worth more than $118 million, it announced Monday. It will keep its name and management, and its 200 employees will be given stock options in the new parent company.

It’s a win-win for both partners: The Apothecarium may get more support, and the Canadian company can expand its operations into the fertile California market.

Oakland’s Harborside, one of the largest dispensaries in the nation, announced a deal on Monday with Toronto’s Lineage Grow Co. that gives it a listing on a Canadian stock exchange.

This could give Harborside the funds it needs to grow.

A total of 10 U.S. cannabis companies have gone public on the Canadian Securities Exchange – nine of them within the past year, said Kessner.

Meanwhile, American companies that have steered clear of U.S. weed are investing in Canada’s cannabis. Altria, the maker of Marlboro and other cigarettes, paid $1.8 billion for almost half of Cronos Group, a cannabis company in Toronto. Constellation Brands, which owns Corona and other beers, paid $4 billion for a major stake in Canada’s Canopy Growth. Another brewer, Molson Coors, entered into a joint venture with a Quebec cannabis company.

As more money gets invested in weed, there could be a consolidation of once-fragmented businesses across North America, said Kessner.

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