US pot financing outpaces Canadian cannabis companies on CSE

U.S. cannabis companies raised $1.5 billion on the Canadian Securities Exchange during the first 10 months of this year, surpassing their Canadian counterparts for the first time as investor interest shifts south of the border.

Data from the alternative exchange shows that U.S.-based pot companies raised roughly $1.5 billion between January and October 2018, usurping the $1 billion raised by Canadian-based cannabis issuers during that period.

Investor attention is pivoting towards the cannabis industry in the U.S., where marijuana remains illegal at the federal level but political sentiment is warming up.

"The Canadian side of the business, it's capitalized at this point," CSE chief executive Richard Carleton said.

TMX Group, Canadas biggest exchange operator, warned last year that pot companies with ongoing cross-border activities are not in compliance with TSX requirements and face delisting. That cemented the CSE as the go-to exchange for pot companies with U.S. interests as it allows issuers to have exposure, provided they disclose the risks to investors.

"There's obviously more work to be done, but the real activity yet to come is obviously in the United States."

Cannabis is legal for medical or recreational use in several U.S. states, but it is considered a Schedule 1 drug federally south of the border. Although Canada is at the forefront and became the second country in the world to legalize pot for adult use on Oct. 17, the U.S. market has far more potential.

Cannabis is legal for medical or recreational use in several U.S. states, but it is considered a Schedule 1 drug federally south of the border. Although Canada is at the forefront and became the second country in the world to legalize pot for adult use on Oct. 17, the U.S. market has far more potential.

The U.S. market for cannabis could be worth more than $65 billion, including illicit demand, more than ten times the size of Canada's, according to a recent Scotia Capital Inc. report.

Two major political opponents to the federal legalization of cannabis in the U.S. were also removed this month. Texas Representative Pete Sessions, a staunch medical marijuana opponent, was defeated and Jeff Sessions has resigned as attorney general at the request of U.S. president Donald Trump.

Pot companies have flocked to the CSE due to its looser listing rules than the bigger Toronto Stock Exchange, and marijuana listings accounted for 70 per cent of the $3.6 billion in financing activity during the first 10 months of 2018.

The CSE had 212 pot industry financings and $2.5 billion raised in that period, up from 156 deals worth $691 million or 50 per cent of financing deals in all of 2017. Also, for the first time, cannabis issuers from outside of the U.S. and Canada are looking to the CSE, with six listings from Israel thus far in 2018, the exchange says.

We all have some level of cultivation going on in our businesses, but the real focus is consumers… In Canada, its pretty much you buy soulless packaged goods only from the government, theres not a lot of opportunity to differentiate.

The CSE hit a monthly fundraising record last month, led by U.S. medical pot producer and retailer Curaleaf which raised $520 million in a financing via a reverse-takeover. The Massachusetts-based company's deal was the largest completed on the CSE to date, the exchange says.

Theres expected to be significant consolidation in the United States, mergers and acquisitions, Carleton said. And clearly having the liquid currency of a public company as one of the tools in your kit is a huge advantage.

The alternative exchange has seen more U.S.-based cannabis companies listings in November as well. Green Growth Brands Inc. debuted on the CSE on Tuesday and Acreage Holdings Inc., which includes former prime minister Brian Mulroney on its board, commenced trading on the CSE on Thursday. Dixie Brands Inc., known for its cannabis-infused products, is eyeing a listing on the CSE via reverse-takeover by the end of the month.

Pot companies have flocked to the CSE due to its looser listing rules than the bigger Toronto Stock Exchange, and marijuana listings accounted for 70 per cent of the $3.6 billion in financing activity during the first 10 months of 2018.

"There's expected to be significant consolidation in the United States, mergers and acquisitions," Carleton said. "And clearly having the liquid currency of a public company as one of the tools in your kit is a huge advantage."

In addition, a bill known as the STATES act amending the Controlled Substances Act which could effectively make marijuana federally legal in states where recreational consumption is legal has been referred to a Senate committee.

Canada's policy on cannabis has allowed domestic pot companies to grow and expand into the global market while the plant's conflicting legal status south of the border keeps U.S. competitors at bay — for now.

U.S. cannabis companies raised $1.5 billion on the Canadian Securities Exchange during the first 10 months of this year, surpassing their Canadian counterparts for the first time as investor interest shifts south of the border.

U.S. cannabis companies not able to raise public capital at home because the drug is illegal federally have looked to Canada for financing, and the CSE has been the main beneficiary.

TMX Group, Canada's biggest exchange operator, warned last year that pot companies with ongoing cross-border activities are not in compliance with TSX requirements and face delisting. That cemented the CSE as the go-to exchange for pot companies with U.S. interests as it allows issuers to have exposure, provided they disclose the risks to investors.

Canadas policy on cannabis has allowed domestic pot companies to grow and expand into the global market while the plants conflicting legal status south of the border keeps U.S. competitors at bay — for now.

Meanwhile, Canadian companies such as Canopy Growth Corp. and Tilray Inc which do not have direct exposure to the American market have been listing on U.S. exchanges. These larger players are also eyeing an entry into the U.S. market once federally legal as the odds of such a policy shift increase. During the U.S. midterm elections earlier this month, Michigan became the latest to approve recreational pot legalization and Utah and Missouri approved the drug for medical purposes.

Two major political opponents to the federal legalization of cannabis in the U.S. were also removed this month. Texas Representative Pete Sessions, a staunch medical marijuana opponent, was defeated and Jeff Sessions has resigned as attorney general at the request of U.S. president Donald Trump.

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Legislation that would allow for the full legalization of industrial hemp in the U.S. and ease restrictions on the cannabis compound CBD is also working its way through the U.S. legislative process.

Legislation that would allow for the full legalization of industrial hemp in the U.S. and ease restrictions on the cannabis compound CBD is also working its way through the U.S. legislative process.

In addition, a bill known as the STATES act amending the Controlled Substances Act which could effectively make marijuana federally legal in states where recreational consumption is legal has been referred to a Senate committee.

The U.S. market for cannabis could be worth more than $65 billion, including illicit demand, more than ten times the size of Canadas, according to a recent Scotia Capital Inc. report.

U.S. pot companies operating in states where the drug is legal have an edge by being on the ground, but also from more scope to promote brands and develop intellectual property than their Canadian counterparts.

That latitude in the U.S. offers more upside for investors, said Peter Horvath, the chief executive of Green Growth Brands.

Investor attention is pivoting towards the cannabis industry in the U.S., where marijuana remains illegal at the federal level but political sentiment is warming up.

"We all have some level of cultivation going on in our businesses, but the real focus is consumers… In Canada, it's pretty much you buy soulless packaged goods only from the government, there's not a lot of opportunity to differentiate."

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Distinctions between credit unions and private banks are fading as online banking, changing regulations, and competition have changed the retail banking landscape, but a few fundamental differences remain for those undecided between the two.

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Credit unions, a member-owned banking model, once had the advantage on value, while the greater resources of banks offered convenience and scale. However, both sides have recently pushed deeper into the other's turf, said Tom Drake, founder of financial advice website MapleMoney.

"I think the lines are getting blurred quite a bit now. It used to be that credit unions were sort of the one place to get what you can count on being a good deal, but with offers like Tangerine and Simplii Financial and even EQ Bank, it's getting a little harder to see that difference."

The Canadian side of the business, its capitalized at this point, CSE chief executive Richard Carleton said.

While Scotiabank's Tangerine and CIBC's Simplii now offer pared down no-fee chequing and savings accounts pioneered by credit unions, financial co-operatives have countered by expanding their collective no-fee ATM network in 2015 to become the second largest in Canada.

Credit unions are also in the early days of eroding one of the remaining differentiators — that they're provincially-based.

Surrey, B.C.-based Coast Capital Savings, which boasts of being Canada's largest credit union by membership (outside of the Desjardins network of Caisse de depots in Quebec), recently announced it had secured approval to become a national credit union under legislation passed in 2012.

The credit union, the second in the country to get approval to go national after New Brunswick-based UNI credit union, has not announced details of its expansion but says it presents a new front of competition in the financial services space.

"It's never been an option at the national level," said Dave Cunningham, head of public affairs for the credit union.

"Right now, because we're confined to our own province, like every other provincial credit union, if our members move to another province, they have to leave us."

The switch to a national union, while pushing into banks' turf, would also mean an end to some advantages of being provincially regulated, like not being required to meet more stringent federal mortgage thresholds, and having unlimited deposit coverage in some provinces.

So what are the remaining differentiators in retail banking? Credit unions maintain that because they're owned by their customers, they're motivated to offer better service and more community investments.

"The whole objective is different. They serve their members," said Martha Durdin, CEO of the Canadian Credit Union Association

Credit unions have won the Ipsos overall customer service award 13 years in a row, Durdin points out. They also give away a much bigger share of earnings, though it amounts to less because banks are just so much bigger.

"Banks give what, one per cent of pre-tax profits? Credit unions give five per cent on average. That's a huge difference," said Durdin.

Canfor Corp. has signed a deal to buy a 70 per cent stake in Swedish sawmill company Vida Group for about $580 million.

Under the agreement, the current owners of Vida will retain a 30 per cent interest and continue to manage the day-to-day business.

The privately held company has nine sawmills in southern Sweden with an annual production capacity of 1.1 billion board feet.

Vida also has nine value-added facilities that include premium packaging, modular housing, industrial products and energy.

Canfor says it expects to be able to finance the acquisition with cash and liquidity on hand, but will complete an extension and expansion of its existing operating and term loan facilities.

The Bank of Canada provided a closer look Wednesday at just how much stricter mortgage rules and higher interest rates have helped slow the entry of new households into the category of "deeply indebted borrowers."

The lofty levels of household debt has been a key concern for the Bank of Canada as it gradually raises its trend-setting interest rate, which it has already hiked five times since the summer of 2017.

To determine the pace of future hikes, the central bank has closely watched how well households are adapting to higher borrowing costs, particularly when it comes to those that are significantly overstretched.

So far, the bank has said Canadians have been making spending adjustments in response to rate hikes and the arrival of stricter mortgage policies. At the same time, the bank has reported that credit growth has continued to moderate and household vulnerabilities, while still elevated, have edged down as a result.

A staff analytical note published by the bank Wednesday offered more details about the impacts of new guidelines and rising interest rates.

"The number of new highly indebted borrowers has fallen, and overall mortgage activity has slowed significantly," said the research paper, co-authored by bank staffers Olga Bilyk and Maria teNyenhuis.

"Tighter policies around mortgage qualification and higher interest rates are having a direct effect on the quality and quantity of credit."

The analysis said mortgage stress tests introduced two years ago have reduced the share of new high-leverage, insured loans — those of more than 4.5 times a borrower's annual income — to six per cent in the second quarter of 2018 from 20 per cent in late 2016.

Another federal rule change this year, aimed at high-leverage yet uninsured mortgages, dropped the share of these new loans to 14 per cent in the second quarter of 2018, compared with 20 per cent a year earlier.

"The most-pronounced decline has been in the number of new mortgages extended to highly indebted borrowers, which fell by 39 per cent year-over-year in the second quarter of 2018," the research paper, which also noted there have been impacts from regional housing market policies.

Speaking to reporters Wednesday, Bank of Canada senior deputy governor Carolyn Wilkins said the debt-to-income ratios of households remain "really high," but have stabilized and are beginning to move down.

EBay is calling on the federal government to legislate an end to the Canada Post contract dispute, warning that quick action is needed to ensure retailers don't lose out on Black Friday and Cyber Monday sales.

The manager of the online sales giant's Canadian and Latin American divisions says continued rotating strikes at Canada Post will result in significant losses for small and medium-sized businesses across the country.

While those businesses have adapted as best they can to the strikes that began Oct. 22, Andrea Stairs says in a letter to Prime Minister Justin Trudeau that the adjustments retailers have made so far to avoid delivery disruptions are unsustainable.

Meanwhile, Canada Post says it is now facing an unprecedented backlog of shipments, largely as a result of strikes at its major sorting plants in Vancouver and particularly Toronto.

A spokesman for the Crown corporation says that, as of this morning, there were more than 260 trailers filled with parcels waiting to be unloaded at its Gateway processing plant in Toronto — and that number is expected to rise quickly.

The prime minister warned last week that his government would look at all options to end the labour dispute if there is no significant progress in Canada Post's contract talks with the Canadian Union of Postal Workers.

Loblaw Companies Ltd. reported its third-quarter profit fell compared with a year ago as it was hit by a one-time charge related to a tax court ruling that it plans to appeal.

The retailer says it earned a profit attributable to common shareholders of $106 million or 28 cents per share for the quarter ended Oct. 6.

The quarter included a $367-million charge related to its former Barbadian banking subsidiary Glenhuron Bank Ltd. after a tax court ruling regarding Canada Revenue Agency's reassessments. Loblaw has said it will appeal the decision.

The result for the quarter compared with a profit of $883 million or $2.24 per share a year ago when its results were boosted by a gain of $432 million on the sale of its gas bar operations.

On an adjusted basis, Loblaw says it earned $562 million or $1.49 per share for its most recent quarter, up from an adjusted profit of $549 million or $1.39 per share a year ago. Analysts on average had expected a profit of $1.44 per share, according to Thomson Reuters Eikon.

Canopy Growth Corp. reported a loss of $330.6 million in its most recent quarter as it ramped up spending ahead of the legalization of recreational marijuana in Canada.

The company says the loss amounted to $1.52 per share compared with a loss of $1.6 million or a penny per share a year ago.

The quarter included $700,000 in revenue from what Canopy said were test shipments to test supply chain systems ahead of the launch of recreational marijuana on Oct. 17.

During the quarter, the company sold 2,197 kilograms and kilogram equivalents at an average sale price of $9.87 per gram, up from 2,020 kilograms and kilogram equivalents at an average price of $7.99 a year ago.

Canada Goose Holdings Inc. beat expectations as it reported a second-quarter profit of $49.9 million and raised its outlook for growth for the year.

The luxury parka maker says the profit amounted to 45 cents per diluted share for quarter ended Sept. 30 compared with a profit of $37.1 million or 33 cents per diluted share a year ago.

Revenue in what was the company's second quarter totalled $230.3 million, up from $172.3 million in the same quarter last year.

On an adjusted basis, Canada Goose says it earned 46 cents per diluted share in the quarter, up from an adjusted profit of 29 cents per diluted share a year ago. Analysts had expected a profit of 26 cents per share for the quarter, according to Thomson Reuters Eikon.

In its outlook, Canada Goose says it now expects annual revenue growth of at least 30 per cent compared with its earlier forecast for at least 20 per cent.

The company also expects annual growth in its adjusted net income per diluted share to be at least 40 per cent compared with its earlier guidance of at least 25 per cent.

West Fraser Timber Co. Ltd. says it will permanently curtail about 300 million board feet of lumber production at two mills next year, affecting 135 employees.

The Vancouver-based producer says the curtailments at its Fraser Lake and Quesnel sawmills will be achieved through the elimination of a third shift at each mill.

The reduction is expected to impact about 60 employees in Fraser Lake and 75 at Quesnel over the first and second quarters of 2019.

The company says it expects to mitigate the impact on employees by offering them work at other West Fraser operations.

West Fraser says the decision better aligns production with timber supply in light of shortages resulting from the mountain pine beetle infestations.

The industry has also faced U.S. import tariffs that have been offset by higher lumber prices until they recently declined.

B.C.-based cannabis producer Tilray Inc. says product has been selling out in the first few weeks of legalization and while it has explored buying wholesale to bridge the supply gap, there is "far less" pot available than expected.

Despite companies touting large production capacities over the past year, upon inspection there was less pot available and a lack of high quality product up for grabs, said the Nanaimo-based president and chief executive officer Brendan Kennedy.

"People tended to exaggerate their capacity and tended to exaggerate the metric tonnes that they were going to be producing… Both of those things have been very surprising," he said on a call with analysts Tuesday to discuss the company's third-quarter earnings.

Tilray's comments come after Canada legalized cannabis for adult use on Oct. 17 — becoming the second country to do so after Uruguay — and product shortages continue to loom at bricks-and-mortar stores and online.

Some government entities responsible for the sales and distribution of adult-use cannabis in various provinces have said they are receiving less product than expected and have warned that these shortages could last for months. Tilray has signed agreements to supply recreational pot to eight provinces and territories.

"With the imbalance we have today, with more demand than supply, everything is selling out," Mark Castaneda, Tilray's chief financial officer told analysts on the conference call.

Another factor complicating the product shortages at government and territorial distributors was the timing of licences, the company said.

At the end of the quarter, Crown corporations didn't have licences to receive packaged products, he said.

Tilray did not make any shipments of recreational cannabis during its latest quarter, ended Sept. 30, Kennedy said.

Still, the cannabis producer reported an 85-per-cent jump in revenue year-over-year to US$10 million, driven by increased patient demand, bulk sales to other licensed producers, and accelerated wholesale distribution in export markets.

However, Tilray posted a wider net loss of US$18.7 million during the quarter, compared with US$1.8 million during the same period a year ago, as it ramped up for legalization and expanded its global operations.

Analysts had expected revenues of US$10.1 million and a loss of US$12.7 million, according to Thomson Reuters Eikon.

The marijuana producer, which has a market capitalization of roughly US$10.2 billion, said the higher net loss was due to higher operating expenses related to growth and international expansion.

Tilray says other factors driving up its net loss include costs related to financing and its initial public offering on the Nasdaq in July.

Christie's sold the "Pink Legacy" diamond at auction Tuesday for more than $50 million including fees, saying it's a new world record price per carat for a pink diamond.

Christie's said that renowned jeweler Harry Winston was the buyer. The auction house had expected to fetch $30 million to $50 million for the nearly 19-carat, rectangular-cut stone, the largest fancy vivid pink diamond that it has ever put under the hammer.

It was the standout offering at Christie's fall jewelry auction in Geneva. The standing-room only ballroom broke into applause after the auctioneer struck down a hammer price of $44.5 million. That excludes the standard "buyer's premium" and other fees.

The stone once belonged to the Oppenheimer diamond family, and Christie's says it's among the most chemically pure gems.

Rahul Kadakia, Christie's head of international jewelry, said that auction house has only sold four diamonds weighing more than 10 carats of the same colour in its 251 years of history.

Christie's sale kicks off two days of jewelry auctions in Geneva. On Wednesday, Sotheby's will auction jewelry once owned by French Queen Marie Antoinette that hadn't been seen in public for 200 years.

The head of Bombardier Inc. is defending his move to lay off 5,000 workers — 3,000 of them in Canada — citing efficiency while leaving the door open to more job cuts down the line.

"Yes, it is tough. And yes, many people do not like this. But the fact is we want to go and be a world-class organization, and we want to be at benchmark everywhere when it comes to revenue per employees," chief executive Alain Bellemare told an investor conference in Toronto on Tuesday.

The comments were the first he's spoken of the layoffs — or potential cuts ahead — since the airline announced major restructuring last Thursday.

Bellemare did not specify where or when the positions would be cut, though Bombardier has said 2,500 workers in Quebec and 500 in Ontario will lose their jobs as part of his five-year plan to rein in costs, focus on rail and business jets and reduce the net long-term debt of US$9 billion.

The restructuring, announced alongside Bombardier's third-quarter earnings, is slated for completion within 18 months and for savings of $250 million annually.

The announcement comes after mass layoffs over the past three years, with about 14,500 positions cut around the world in the aerospace and railway divisions.

Union and opposition leaders decried the layoffs announced last week, with some demanding that executives renounce their salary bonuses.

Quebec Economy and Innovation Minister Pierre Fitzgibbon called a special meeting of industry and union representatives in Montreal Monday to discuss the layoffs and find a path back to employment for affected workers. Bellemare did not attend, dispatching a pair of Bombardier executives in his stead.

Despite agreeing to sell the Q-400 turboprops to Longview Aviation Capital for about US$300 million, Bellemare said he wants to keep making the airline's CRJ regional jets to build up backlog, but will reassess later on.

"The answer today is we want to keep this line going," he said. "We might look at partnering, if it makes sense."

Bombardier shares fell to a new 52-week low, losing 20 cents or eight per cent at $2.30 in early afternoon trading.