ACRGF - Bank of America Continues Moves in Cannabis Space
US banks continue moving towards deal making in the cannabis sector, with Bank of America (NYSE:BAC) now holding just over US$2 million worth of stock in a large Canadian marijuana firm.
The bank reported that it held 382,352 shares of Aphria (NYSE:APHA,TSX:APHA) as of its latest disclosure with the US Securities and Exchange Commission, as per a Finance Daily report on Saturday (May 4).
Bank of America has taken decisive steps forward in the marijuana industry as it recently launched its coverage of the space.
In April, the banking firm issued its first analyst report on the Canadian cannabis space.
While the bank shows its willingness to hop on board the legal cannabis industry, the report raises some questions on the future state of the Canadian market.
“There are over 50 publicly traded Canadian cannabis licensed producers, far too many for a cannabis market the size of Canada’s, in our view,” analyst Chris Carey indicated in the report.
This move represents another sign of the US bank expanding its presence in the cannabis sector.
Bank of America’s subsidiary BofA Merrill Lynch is acting as an underwriter for CannTrust Holdings (NYSE:CTST,TSX:TRST). Last Thursday (May 2), the Canadian cannabis firm priced an offering at US$5.50 per share, seeking to gain gross proceeds of approximately US$170 million.
CannTrust closed the offering on Monday and reported the sale of 30.9 million shares for its estimated gross return.
Aphria is trying to turn the page on its previous reputation. After a turbulent period of time in its operations, including facing short sellers and takeover bids, the company’s new management team is seeking to move past those times and present a new face to investors.
In an interview with BNN Bloomberg, Irwin Simon, chairman and interim CEO of the company, admitted there has been a “black cloud” surrounding the company and its stock.
“I’m amazed at what this company’s been able to deal with, and our big challenge has been to show what’s here to get people really to believe in what we’re able to do,” the executive said as he listed some of the recent complications for Aphria.
Simon explained that the company is in no rush to proceed with a deal to guarantee an entry into the US market through an agreement with a multi-state operator (MSO).
Interest for agreements between Canadian firms and US operators have seen increasing attention from investors thanks to the Canopy Growth (NYSE:CGC,TSX:WEED) deal with MSO Acreage Holdings (CSE:ACGR.U,OTCQX:ACRGF).
The unique structure of the arrangement between Canopy and Acreage has gained popularity with experts in the space, who are projecting more partnerships like this one.
Matt Bottomley, equity analyst covering the marijuana space with Canaccord Genuity (TSX:CF,OTC Pink:CCORF), told shareholders during the Arcview Investor Forum in Vancouver that if this deal structure catches on in the market he expects to see “almost every large-cap LP enter the US space.”
Shares of Aphria dipped on Monday’s (May 6) trading session by 0.72 percent in New York. The company finished the day at a price of US$6.89.
Aphria dropped in Toronto as well, reaching C$9.26, which represents a marginal decline in value of 0.64 percent.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Acreage Holdings is a client of the Investing News Network. This article is not paid-for content.