Shares of Ottawa-based CannaRoyalty Corp. (CSE:CRZ) began trading on the Canadian securities exchange today as the company works to cultivate a unique investment opportunity in Canada and the United States.
CannaRoyalty, or Cannabis Royalties, finances and invests in marijuana companies in Canada and in American states that have legalized the substance, including the recent additions of California and Florida (medical-use only).
Since marijuana remains federally illegal in the United States, American investors are unable to purchase stock in U.S. cannabis companies. Both American and Canadian investors can, however, invest through CannaRoyalty, which currently holds a portfolio of 18 marijuana companies, three of which are Canadian.
The rapidly evolving patchwork of laws governing the use of cannabis in the United States and Canada (where legal marijuana regulation is expected to be introduced in April 2017) has created a budding opportunity for entrepreneurs, and, in CEO Marc Lustig’s view, for CannaRoyalty.
“It’s a very unique time period that we’re in,” he says. “What was a dark, black product forever is now everybody’s favourite recreational product, and at the same time you’ve got the medical community clamouring to do research with the product because they’ve never been allowed to before.”
Mr. Lustig sees many cannabis entrepreneurs in North America who have great ideas but are inexperienced in raising capital. He also sees banks avoiding the risks of the industry, unwilling to dive into the market until they’re sure the majority of investment conditions and risk calculations fall in their favour.
“The reputation police are watching this sector very closely and are advising the banks to stay out of it, for now,” Mr. Lustig says.
Instead of hesitating, the two-year-old CannaRoyalty is financing and acquiring equity in promising companies in return for ownership, royalties or licensing agreements. Mr. Lustig calls the strategy “buying up real estate” in the industry before banks and companies in the alcohol, tobacco and pharmaceutical sectors dive into the marijuana market.
“Banks will (eventually) lend, access to cannabis will open up, values will go higher. We’re grabbing up those assets now and helping those people get that financing.”
To that end, Mr. Lustig acknowledges that the timeframe for these opportunities may be fleeting.
People have offered their condolences about Donald Trump’s victory in the election in the anticipation of a more conservative administration that would hamper an eventual federal legalization of marijuana in the U.S. But Mr. Lustig says these people don’t understand CannaRoyalty’s position in the market. The more quickly marijuana is legalized, the faster deep-pocketed competition will start pouring money into the sector.
“You would have to be insane if to not think there are people at those companies who are looking at the cannabis sector as their next area of significant investment.”’
Many of the companies in CannaRoyalty’s portfolio are not necessarily growers of cannabis, but develop services, products and technologies on the periphery of the industry. These include Toronto-based companies Resolve Digital Health, which develops a smart inhaler system for regulated dosing, and Bodhi Research, which uses cannabis in trials for concussion treatment.
While Mr. Lustig is based in Vancouver with his family, CannaRoyalty is headquartered in Ottawa’s Preston Square with six staff including the chief financial officer and chief operations officer running the general and administrative aspects of the business. CannaRoyalty’s board of directors includes Chuck Rifici, co-founder and former CEO of Ottawa-area firm Tweed Marijuana, now Canopy Growth (TSX:CGC).
CannaRoyalty also announced today that it had acquired a majority stake in a California-based cannabis skincare company, DermaLeaf. Mr. Lustig says his company is also on the verge of four deals, one each in Florida and California and two in Canada, likely to close by the first quarter of 2017.
Mr. Lustig has a great deal of confidence about these opportunities and others he sees in the cannabis market.
“I believe that cannabis will be bigger than alcohol, tobacco, and nutraceuticals, in some cases, all combined.”
Shares of CannaRoyalty opened the day at $5.00, reaching as high as $5.20 before falling to $3.38 in late afternoon trading.