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Canaccord Genuity Corp.'s Canadian capital markets revenue dropped 42 per cent in the last three months of 2019 compared with the previous year, driven by a sharp decline in cannabis underwriting work.

The investment bank’s capital markets team brought in $35.3-million less from Canadian operations in its third quarter ended Dec. 31 than it did in the same quarter a year earlier. That meant Canadian business accounted for only 28 per cent of Canaccord’s total capital markets revenue in the quarter, compared with 40 per cent the year before.

The drop was “partially due to a reduction in financing activity by issuers in the cannabis industry,” the company said in financial filings for the latest quarter, released Wednesday evening.

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Between 2015 and 2018, Canaccord dominated cannabis financing, underwriting both Canadian pot producers and U.S. companies listing on Canadian exchanges. In the last three months of 2018 alone, Canaccord helped raise around $2-billion for cannabis companies, including co-leading a $520-million initial public offering for Curaleaf Holdings Inc. and a US$314-million IPO for Acreage Holdings Inc.

Those fees dried up in 2019, as cannabis companies posted disappointing results in the wake of recreational legalization in Canada and investors lost interest in the emerging sector. Canaccord’s Canadian capital markets revenue was down 28 per cent, year over year, in the first nine months of the current fiscal year.

Revenue from global trading activity declined 11.8 per cent in the quarter compared to the previous year. This was offset by an increase in higher-margin advisory fees, particularly in the U.S., where Canaccord acquired New York-based M&A advisory firm Petsky Prunier last year.

Despite a year-over-year decline in capital markets activity, chief executive Dan Daviau said the quarter was “solid” by historical standards.

"Over all, pipelines are healthy across all products in our fourth quarter, and we’re positioned to continue to gain share in our key midmarket focused sectors in all of our geographies,” Mr. Daviau said on a Thursday-morning call with analysts.

“As always, converting the pipeline to completion remains dependent on market conditions. While the completion of the Brexit bill and the recently announced trade agreement between U.S. and Canada removes some, but not all uncertainty, event risk for our industry remains elevated,” he said.

Revenue from the wealth management side of Canaccord’s business was up 10.7 per cent year-over-year, and contributed roughly 60 per cent of the company’s pretax net income. This growth was aided by the October acquisition of Australian wealth management firm Patersons Securities Ltd., which posted $11.1-million in revenue for the quarter.

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Across the board, the company reported $308-million in quarterly revenue, down 7 per cent year-over-year, and net income of $22.8-million, or 21 cents per share, a drop from 31 cents per share. The company’s share price rose more than 3 per cent in Thursday-morning trading.

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