Cannabis Profits Could Boost Junior Miners on CSE

The Canadian economy has felt an anticipated boom from the October legalization of cannabis, but another sector that could stand to reap the benefits is the junior mining space.

An annual survey from PricewaterhouseCoopers (PwC) shows that initial public offerings (IPOs) were on the rise in 2018, especially in the year’s last quarter, which saw 22 new issues across three Canadian exchanges, for $336 million in equity raised.

In total, 54 new issues generated $2.2 billion across four Canadian exchanges in 2018, which is lower than 2017’s $5.1 billion raised from 37 IPOs. However, the major advisory firm considers the year-end results a generally positive finish.

“The fourth quarter was pretty respectable when you consider the market volatility in December,” PwC Canada National IPO Leader Dean Braunsteiner said in a statement. “Unlike 2017 that was skewed by the single giant Kinder Morgan Canada offering, 2018 was reflective of a more normal market in Canada.”

But what does all this have to do with cannabis and junior mining companies? The report from PwC highlights the cannabis market’s limelight takeover last year, explaining that over $491 million was raised for cannabis companies across various Canadian exchanges in 2018.

PwC also notes that the Canadian Securities Exchange (CSE) was a popular avenue for companies in the ever-growing sector. In a November conversation with the Investing News Network (INN), CSE CEO Richard Carleton said the exchange had racked up almost 140 listing applications, about 60 percent of which were cannabis companies.

Alongside the surge of cannabis companies on the CSE, however, were junior miners; last year saw 28 IPOs on the CSE, with a “significant number” being mining issues. “The cost-efficient route to public ownership via the CSE certainly appealed to junior miners and other start-up companies that were focused on maximizing the new equity coming their way,” Braunsteiner added.

With companies from the two spaces congregating in harmony on the CSE, it’s being theorized that cannabis-friendly investors may find themselves lending a few dollars to junior miners.

While Braunsteiner indicates in the PwC report that the CSE hadn’t yet taken the TSX Venture Exchange’s place as the major hub for junior mining companies, Carleton speculated that cannabis money from the CSE could end up helping support the mining sector.

“We’re actually seeing a lot of traditional Canadian natural resources [stocks]. Some mining exploration, and even with all the turmoil from oil and gas exploration [stocks are] getting funded,” Carleton told INN.

“And my personal theory is that, in fact, what we’re seeing is money that has been made, investment profits that have been made in the cannabis space, are actually getting recycled into other industries at this point to diversify the investors’ approach to early stage capital.”

Carleton elaborated further on the return of junior miners to the CSE, explaining that over 50 mining companies were listed on the exchange over the course of the year, with the mining sector collectively raising approximately $210 million through to the end of November.

While the numbers aren’t as high as results seen from the cannabis industry, Carleton says it still “represents a considerable amount of corporate finance activity.”

“The mining trend is encouraging, and runs contrary to many of the fundamentals in the mining industry: trade wars and tariff increases and continued downward pressure on key commodity prices,” he said.

“That said, it appears that investors are beginning to take heed of a variety of forecasts that suggest an absence of investment in the space will lead to supply constraints and rising prices for many of these commodities in the coming years.”

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Securities Disclosure: I, Olivia Da Silva, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.