Dec 11, 2018

Canopy's Linton says institutional investors warming up to pot stocks

Bruce Linton: Institutional money warming up to pot stocks


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Institutional investors eyeing the cannabis industry are likely to move into the sector next year, but will focus their investments on companies with strong corporate governance practices, according to the head of Canada’s largest licensed pot producer.

Bruce Linton, co-chief executive officer of Canopy Growth, told BNN Bloomberg in an interview Tuesday morning that while retail investors latched onto the cannabis space in recent years, institutional support is rising following a run of billion-dollar deals.

“What you’re seeing is retail jumping in and out. But when they get out, I think a lot of stocks -- like ours -- are getting institutional support,” Linton said.

“We’re going to see a shift in the 2019 theme: those which are institutional investable and those whose aunts and uncles buy and sell in the morning and afternoon.”

Investors who placed bets on the cannabis sector five years ago have witnessed a staggering gain on their investments as companies went from penny stocks on the Toronto Stock Exchange to the biggest movers on the market; but institutional investors, notably in the U.S., have stayed on the sidelines amid concerns about the stigma of owning publicly-traded marijuana companies and unease about corporate governance in a relatively nascent industry.

Several institutional investors which have already invested in Canopy Growth include Vanguard Group, Morgan Stanley and the Macquarie Group. Meanwhile, the industry has attracted interest from several large Canadian pension funds such as Alberta Investment Management Corp. and British Columbia Investment Management Corp., which have made early investments in cannabis companies. 

However, with blockbuster partnerships such as tobacco giant Altria Inc. investing $2.4 billion for a 45 per cent stake in Cronos Group last week as well as Constellation Brands Inc.’s $5-billion investment in Canopy Growth in August, the interest from institutional investors will likely increase and help improve best corporate practices across the cannabis sector, Linton said.

“You don’t get somebody handing you $5 billion without being sure that your character is sound and your governance is good,” Linton said.

With a slew of well-capitalized cannabis firms now drawing the interest of institutional investors, companies including Canopy Growth, Cronos Group and other peers such as Aurora Cannabis Inc. are using their funds for global expansion efforts, mainly in Europe and South America.

“Institutions aren’t buying us for a dividend, they’re buying us for domination,” he said.

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.