Stifel CEO: We'll be 'limited' on cannabis in U.S., but it is part of GMP acquisition

Stifel Financial Corp.’s move to buy GMP Capital Inc.’s capital markets business for about $70 million will expand the Canadian investment banking firm’s ability to make more cannabis deals south of the border, executives from both companies said.

“We’ll remain very active in cannabis internationally,” said Harris Fricker, chief executive officer of GMP Capital, in an interview on BNN Bloomberg.

“We’ll continue with research including U.S. names. Where we see a big opportunity is consolidation in the space. If you’re going to be a consolidator, you’re going to need cross-border M&A capability and also into Europe where we’re seeing activity coming from over there.”

GMP Capital’s cannabis business has emerged as a signficant revenue driver for the firm, which has seen a slowdown in energy and mining activity and increased competition from larger Canadian banks. GMP said it generated $52.5 million in cannabis and healthcare investment banking revenue in 2018, nearly half of the $122.6 million it made in investment banking services during that time.

GMP has been active in several major cannabis deals over the past several years including bringing Curaleaf Holdings Inc. - one of the biggest U.S. cannabis players - to public markets, as well as providing other financial advisory services with other U.S. pot firms including Green Thumb Industries Inc. and iAnthus Capital Inc.

Meanwhile, several analysts and cannabis industry insiders believe the Canadian pot space will get drastically smaller given the dearth of available capital for domestic-focused players and looming oversupply in the legal marijuana market.

The cash purchase by Stifel gives the St. Louis-based firm a foothold into Canada to diversify a business from which nearly 95 per cent of revenue is U.S.-based. GMP Capital’s market value is about $162 million, while Stifel’s is more than US$4 billion. The deal excludes GMP Capital’s 33-per-cent stake in the Richardson GMP money-management firm and its U.S. cannabis business, the companies said in statements Monday.

Stifel CEO Ronald Kruszewski said during an interview on BNN Bloomberg that the combined company will likely be limited in terms of what kind of U.S. activity it can pursue in the cannabis sector as the drug remains illegal on the federal level. However, he added “that expertise is coming along and we will be a player in this industry for sure.”

There are several pieces of legislation being debated in U.S. Congress that would enable U.S. cannabis firms to conduct banking services in the country. The Secure and Fair Enforcement Banking Act, or SAFE Act, would allow banks to service cannabis companies that comply with state laws. It is expected to be passed into law sometime in 2020.

“The market in the U.S. will evolve and the big opportunity is going to be for a branded, co-ordinated, cross-border platform that can serve capital-raising and, just as important, advisory [services],” Fricker said.

Meanwhile, Kruszewski said GMP’s energy expertise will also have an impact on the company’s expanding operations, describing that line of business as one that is “going to pay a lot of dividends for us.” GMP Capital acquired FirstEnergy Capital in 2016 for $98.6 million in a move that bolstered the firm’s boutique energy investment banking offerings.

“All of [this] aligns with Stifel’s focus on small and mid-cap companies, not just in the U.S., but globally,” he added.

- With a file from Bloomberg News

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