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Marijuana grows at a MedReleaf facility in Markham, Ont., in January, 2016.Nathan Denette/The Canadian Press

Shares of medical-marijuana producer MedReleaf Corp. tanked Wednesday in its stock market debut amid concerns about lofty valuations in the sector.

The Markham, Ont.-based firm raised $80.7-million in an initial public offering (IPO) through a treasury offering of 8.5 million shares. Early stakeholders sold stock worth $20-million in a secondary offering.

MedReleaf's shares closed at $7.40 on the Toronto Stock Exchange, a 22-per-cent haircut compared with the IPO price of $9.50.

"It's mostly a sign of fatigue in the industry," said Peter Hodson, the founder and head of research at 5i Research. "The Cannabis Wheaton situation sort of highlighted some of the conflicts that can exist."

Earlier in the week, royalty streaming company Cannabis Wheaton Income Corp. pulled the plug on an $80-million financing with independent investment banks Eight Capital and Canaccord Genuity Group Inc. after it was revealed employees for both dealers owned an 8-per-cent stake in the firm, raising concerns about a conflict of interest.

The financing for the TSX Venture-listed company was later resurrected, with Cannabis Wheaton announcing that boutique dealer Mackie Research Capital Corp. would lead a scaled-down, $50-million offering.

Eight Capital and Canaccord were also involved in the underwriting syndicate that brought MedReleaf to market. GMP Capital Inc. was the co-lead underwriter for the IPO alongside Clarus Securities Inc.

When asked via e-mail whether anyone on the Canaccord capital markets team who worked on the IPO owns any shares in MedReleaf, Canaccord chief executive Dan Daviau replied, "To our knowledge no one owns."

He added that it's "rare" for the firm's capital markets employees to own shares in companies for which they do financings. "We have very strict written rules in place regarding ensuring client priority and conflicts," he wrote.

Mark Attanasio, managing director of investment banking with Eight Capital did not respond to a request for comment.

And MedReleaf did not respond to a request for comment.

Bruce Campbell, a portfolio manager at StoneCastle Investment Management Inc., bought shares for clients on the MedReleaf IPO but conceded that a lot of the momentum has been sucked out of the sector recently.

"If you look at what's gone on in the last three or four trading days, the [marijuana stocks] have been pretty much straight down," he said.

"The entire industry is frothy because you can't really evaluate these things properly because nobody has any revenues that are really that material," Mr. Hodson said.

MedReleaf had $19-million in revenue for the year ending March 31, 2016, and a net profit of $3.3-million.

Underwriters earned a fee of $5.9-million for bringing the company to market.

"We've been telling clients to stay away for a long time," Mr. Hodson said.

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The Canadian Press

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