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Nov 27, 2019

A budding industry

As the cannabis industry continues to attract significant investment from retail investors, the importance of investor relations comes into focus

Just over three years ago, Canopy Growth Corporation became the first cannabis company to list on a major stock exchange. It graduated from the TSX Venture Exchange to Toronto Stock Exchange (TSX) in July 2016, taking the ticker symbol WEED. At the time, the company’s market capitalization was around $1 bn. By late August 2019, that had risen to more than $8 bn.

Commentators on the cannabis industry have likened the opportunity for wealth creation in a short period of time to the end of prohibition in the US or the fall of the Soviet Union. Vivien Azer, managing director of consumer, beverages, cannabis and tobacco at Cowen & Co, was the first mainstream Wall Street analyst to champion the potential of the cannabis industry. In 2016 Cowen & Co predicted that the cannabis industry would generate $50 bn in sales by 2026. It recently updated this number, predicting that sales would exceed $75 bn by 2030.

Many other sell-side analysts in the US and Canada have followed Cowen & Co’s lead. For instance, Canopy Growth Corp is now covered by 21 analysts – including representatives from Bank of America Merrill Lynch, BMO Capital Markets, CIBC World Markets, Jefferies, RBC Capital Markets, Scotiabank and the current leader in sell-side cannabis coverage, Canaccord Genuity.

Analysts are buoyed by shifting consumer sentiment toward cannabis. According to Gallup, 60 percent of Americans now support legalization of cannabis, compared with only 12 percent in 1969. ‘What’s happened over the last 20 years is that consumer sentiment has changed,’ Azer says in a video published on Cowen & Co’s website. ‘There’s a broader appreciation that it’s less addictive than alcohol.’

Where is cannabis legal?

The growth of the cannabis industry in the public markets is mirrored in – and likely caused by – a softening of cannabis laws around the world. Canada led the way, by legalizing recreational and medicinal use of cannabis in October 2018.

In the US, recreational use of cannabis is legal in 11 states and the District of Columbia, and is decriminalized in another 15 states. Medicinal use is legal in 33 states and the District of Columbia. All use of cannabis remains illegal at the federal level, however, creating challenges from a legal, compliance and risk perspective, and posing restrictions on banking activity.

In Australia, medicinal use of cannabis is now legal and recreational use is decriminalized in several territories. In New Zealand, medicinal use was cleared in 2018 and there is set to be a referendum on legalization of recreational use in 2020. Medicinal use is also now legal in Belgium, Germany, Ireland (as part of a five-year trial), Israel, Italy, the Netherlands and a further 29 countries.

The growing international market for cannabis provides reasons for optimism, but the unique regulatory restrictions around production, distribution and usage in many of the countries listed above pose unique challenges for companies looking to expand their global footprint.  

The value of investor relations

‘There are few industries in the capital markets today where IR professionals can play a more important role than in the cannabis industry,’ says Walied Soliman, global chair and Canadian chair at law firm Norton Rose Fulbright. ‘IR professionals have a critical and important role in the development of the cannabis space in Canada and around the world. In an industry that is continuing to define itself, IR professionals get to shape the shareholder base and help investors get comfortable with the industry.’

There’s a sense that IROs and agencies have an outsize role to play in terms of coaching senior management teams that may have limited exposure to the public markets, advocating for best practices around disclosures, communicating with a largely unsophisticated investor base, navigating complicated regulatory environments, and working with analysts to create a vision of what a mature public market for cannabis companies looks like.

Many of these challenges are also true for other small and micro-cap public companies, but what makes cannabis unique is the speed of growth and the volume of work that takes place. For the largest cannabis companies in the world, there will be weeks in the year where the IR team will attend three to five conferences – akin to the annual conference attendance of some companies. For the smaller cannabis firms, their analyst coverage and market cap growth can change extremely rapidly, posing unique challenges around owning, or even identifying, a narrative for the financial markets.

‘Working in the cannabis sector really does feel like working in dog years,’ says Nick Kuzyk, chief strategy officer and senior vice president of capital markets at High Tide. ‘This last year really would be more like five years in any other industry.’

Growing pains

As of August 2019, High Tide picked up its first covering analyst, from Canaccord Genuity. Kuzyk says there are ongoing conversations with other analysts, but that they are as stretched as IR teams. ‘The one thing that is consistent is that every resource is maxed out,’ he reports. ‘Getting coverage requires analysts to expand their coverage or cut coverage somewhere else.’

For Tyler Burns, the investor relations lead at Canopy Growth Corp, it’s also been a wild ride since he first started working with the company in 2016. At that stage, Canopy Growth Corp had operations at three facilities in Canada and was listed on the TSX Venture Exchange. It now has facilities in eight provinces in Canada and 12 countries around the world, a market cap in excess of $8 bn and it’s listed on the TSX and the NYSE. The dog years analogy rings true for him, Burns says.

‘The biggest part of the IRO’s job is education – constantly talking to our analysts and investors to get them up to speed on the sector,’ he points out. ‘At times the inflow of calls from investment funds in the [New York] area code is... well, let’s just say that on Sundays I parse my days into 30-minute chunks because I have to explain the sector to so many people.’   

This is an extract from IR Magazine’s forthcoming guide to IR at cannabis firms. The full publication covers:

  • Managing large retail investor bases
  • Working with first-time public company executives
  • The legal outlook for the cannabis industry.

For up-to-date details of when the guide will be available, please visit

This article was published in the Winter 2019 issue of IR Magazine.

Ben Ashwell

Ben Ashwell was the editor at IR Magazine and Corporate Secretary , covering investor relations, governance, risk and compliance. Prior to this, he was the founder and editor of Executive Talent , the global quarterly magazine from the Association of...