Small-Cap Cannabis Firms Raise Millions in Growth Cash

 | Jul 12, 2018 | 8:59 AM EDT
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Several micro-cap and private companies in Canada have raised millions this week to boost their cannabis businesses as the industry scales up.

The transactions come as Canada prepares for the start in mid-October of legal adult use of recreational marijuana.

Market participants told Real Money the flurry of deals fits Canada's tradition of financing emerging businesses through small-cap stock, reverse merger listings and private placements.

"Canada has been very familiar with higher-risk ventures in the mining or oil and gas businesses," said an executive with a cannabis company who preferred to remain anonymous. "All of those were very speculative deals to start. It's similar to the cannabis business, which is a hotbed now for investments as the next big industry."

The source noted that larger Canadian cannabis stocks such as Aurora Cannabis Inc. (TSE:ACB)  (ACBFF) or Canopy Growth Corp. (TSE:WEED)  (CGC) started out as small-caps or micro-caps not long ago and quickly mushroomed into larger players. (Aurora Cannabis is part of the Stocks Under $10 portfolio.)

Leo Chamberland, president of Canada's Quadron Cannatech Corp.  (QUDCF) , said small-cap stocks will continue to enter the space as Canada's legal market gears up and investors look to get on board.

"I don't think the interest will wane any time soon," he said. "We'll see the big players survive, and there will be consolidation among the smaller players. Right now we're seeing more cultivation players raise capital, but we'll see lots of ancillary businesses."

Among the recent deals, Vancouver-based cannabis cultivation company Rubicon Organics Inc. on Monday closed a $9 million private placement led by Canaccord Genuity Corp. as sole bookrunner, with Mackie Research Capital Corp. acting as co-lead agent.

All told, the company has raised about $30 million from private investors ahead of plans to list its shares publicly on the Canadian Securities Exchange (CSE) later this year.

A source familiar with the company said investors were motivated by the valuation of more than $1 billion for Green Organic Dutchman Holdings Ltd. (TSE:TGOD)  (TGODF) , which has a similar model as a producer of organically grown cannabis.

Vancouver-based Asterion Cannabis Inc. on Tuesday raised $3.8 million in a private placement to fund construction of a greenhouse cannabis production operation in Queensland, Australia. Asterion said the operation will be the largest in the world at about 99 acres.

Also on Tuesday, Toronto-based Leviathan Cannabis Group Inc. (CSE:EPIC) closed a $5.7 million private placement with broker Haywood Securities Inc. Leviathan plans to use the proceeds to convert a greenhouse into a state-of-the-art cannabis cultivation center.

Meanwhile, Pure Global Cannabis Inc. (PURE) on Wednesday began trading on the TSE's Venture Exchange after a reverse merger with PureSinse Inc, a Toronto-based life science cannabis company. PureSinse's initial growing site is an 18,000-square-foot operation, which is expected to produce more than 8,000 kilograms of dried cannabis per year, with plans for expansion.

Finally, Sproutly Canada Inc. (SPR) , formerly Stone Ridge Exploration Corp., began trading on the CSE on Wednesday.

Already a licensed medical producer of cannabis, Sproutly owns and operates a 16,600-square-feet production operation. It plans to close the acquisition of Infusion Biosciences Canada in July as it seeks to "become a dominant player and provider of best-in-class cannabis products by creating a powerful platform to serve the needs of the food and beverage industry."

A spokesperson for Sproutly said the company has raised about $11 million in capital in the past four years. The company currently is working with regulators to approve its facility for extraction capabilities and commence commercial sales of oils.

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