After years of Canada dominating the world of marijuana finance, the country’s head start is evaporating and U.S. bankers are increasingly answering the call of cannabis companies.

For investment bankers willing to work in weed, the opportunity is large: With legalization spreading across the U.S., the marijuana industry is undergoing a wave of consolidation as large companies race to build a national presence. And while the federal ban on marijuana has kept big banks largely on the sidelines, veterans of Goldman Sachs Group Inc., JPMorgan Chase & Co. and Credit Suisse Group AG are now coming on board.

Take, for instance, the MGO-Ello Alliance, a California-based group that has offered accounting and consulting services to the weed industry for the last few years. It just launched a boutique cannabis investment bank run by a Wall Street veteran called Ello Capital, which the company hopes it will grab some of the banking fees from the surge of marijuana deals.

Big Banks

Ello Capital may be followed by the big investment banks if efforts in Congress to legalize marijuana banking are successful. But even if that’s the case, MGO-Ello argues that its early-entrant experience in the industry will give it an advantage over firms like Goldman Sachs and Morgan Stanley that have massive investor networks and the ability to underwrite large deals.

“I’m confident I can go up against any banker anywhere,” said Hershel Gerson, a veteran of Credit Suisse and Macquarie Capital who’s now the chief executive officer of Ello Capital. “There are going to be a lot of foot faults getting them up to speed.”

In total, Ello hired four bankers and six associates to get the investment bank off the ground. Gerson closed more than $30 billion in deals during his prior banking career, the firm said in a statement.

The rise of cannabis banking comes as investors turn their attention to the U.S. less than a year after Canada legalized marijuana for adults across the country. That has given America’s northern neighbor a head start, and a slew of reverse mergers and public offerings there has helped create the legal market in North America.

But the tide is starting to turn as Canadian companies struggle to make a profit and more U.S. states loosen marijuana regulations. In the first quarter of 2019, there were more cannabis deals targeting U.S. assets for the first time, according to Viridian Capital Advisors.


Viridian, based in New York, was founded in 2014 and calls itself the first licensed investment bank for cannabis. The firm says it’s turning down about 95 per cent of calls it gets these days as family offices, hedge funds and wealthy investors look to invest in the U.S. cannabis industry.

“It’s overwhelming -- we’re drowning in deal flow,” said Scott Greiper, Viridian’s president and founder.

The largest U.S. banks have started to dip their toes into the marijuana industry, with some now offering equity research on Canadian companies. Goldman Sachs and Bank of America drew attention last year by participating when Constellation Brands, the maker of Modelo and Corona, put US$4 billion into Canada’s Canopy Growth Corp.

But for the most part, Canadian banks have dominated, with Canaccord Genuity and GMP Securities being the two largest players. Canaccord was recently listed as an adviser for Grassroots, which was acquired by the most-valuable U.S. marijuana company, Curaleaf Holdings Inc., in a deal worth about $875 million.

Booming Market

Legal marijuana sales surged north of US$10 billion in the U.S. last year, and there are now 11 states where weed is allowed for adults. The market is estimated to be larger in California alone than in Canada. Still, federal prohibition means a state-by-state patchwork of regulations governs the industry, making it tricky to formally value underlying assets, like licenses for retail stores or growing operations.

Additionally, businesses now operating in the legal weed economy sometimes have roots in the black market, making them difficult acquisition targets. In that context, the arrival of more professional bankers, as deals and consolidation increase, is welcome news, according to Christopher Male, managing director of Revel Holdings, a Florida-based cannabis fund.

“It’s moving very fast,” he said. “Everybody wants in now.”

--With assistance from Doug Alexander. 

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.