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One of the world's largest marijuana IPOs is a bust
(Marijuana buds.Blair Gable/Reuters)
Canada's largest marijuana initial public offering is a bust.
MedReleaf, Canada's second-largest licensed grower of medical marijuana, plunged by 28% in its trading debut on the Toronto Stock Exchange on Wednesday morning. It was the biggest drop for a Canadian IPO since 2001, Bloomberg said.
The company raised $100 million in the offering at a valuation of just under $900 million. Shares were initially priced at $9.50, yet they fell to as low as $6.81.
The stock traded almost 500,000 shares in the first 10 minutes of trading, New Cannabis Ventures said.
Matei Olaru, the CEO of Lift, an online marijuana marketplace, chalked this up to "investor fatigue" in the Canadian marijuana industry.
"Valuations in the sector have dropped considerably over the past several weeks, and the MedReleaf IPO was priced under a different market environment," Olaru said. "With so many LPs going public, there isn't enough retail demand to sustain all these valuations."
MedReleaf sold 80% of the shares, with existing shareholders selling the rest in a secondary offering. Seeking Alpha said in May that the optics of this secondary offering may be problematic.
The sellers — most of whom are directors at MedReleaf — were put in a position of encouraging investors to buy the shares they were selling, Seeking Alpha noted.
(People smoke marijuana on the informal cannabis holiday, 4/20, in Boston.Thomson Reuters)
Frank Lane, the president of Cannabis FN, a financial network for the cannabis industry, declined to comment directly on MedReleaf but said the drop was only a "temporary setback" for the cannabis industry.
He said the drop could be due to funding problems resulting from Canadian banks pulling back their capital commitments to cannabis companies.
Canada is also in between "market moving catalysts," Lane said, causing a "lack of positive news pushing the market forward," such as Prime Minister Justin Trudeau's announcement that the government would seek to legalize recreational marijuana federally.
Trudeau's government is hoping to legalize marijuana by July 1, 2018.
MedReleaf is the fourth publicly traded marijuana stock listed on the TSX. Canopy Growth Corp. was trading down by 1.91% at the time of this writing.
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