The announcement that Cantourage will go public may spark a new trend – or it may not
Cantourage announced yesterday that it plans to go public in Frankfurt. The three-year-old company, based in Berlin, is expecting, according to press reports at least, to be within range of 15 million euros of sales this year. Hauck Aufhäuser Lampe., a private bank, is organizing the IPO.
Whether it has a market value of 100 million is another story. There are plenty of reasons why analysts are suspicious of using Canada’s market multiplier here – certainly at this stage in the game. That is not to say that Cantourage has not performed well. The company has steadily carved out a respectable place in the German cannabis market. Founded by people who had previously and successfully exited from Pedianos (bought by Aurora), the company has consistently angled itself into the most profitable market niches, starting with dronabinol.
However, beyond this individual announcement, coming as it does within a week of announced government plans if not the shape of the pending legalization bill, does this move herald a new stampede to the Deutsche Börse by the global cannabis industry? And further, how will Frankfurt stack up against Toronto as the reigning city of public cannabis company finance?
Toronto Ain’t Frankfurt
As many Canadian and American firms learned as of 2018, Germany is not North America. Here is how the German market is already different. The first is that the vast majority of cannabis firms which went public on the TSX did so by backing themselves into reverse IPOs, mostly with mining company shells. Further, they did not have, by far, the kind of legitimate market traction that Cantourage does, and further in a medically certified market that meets global muster (EU GMP).
Beyond this, Cantourage has astutely positioned itself in a way that the Canadians so far could not (or did not want) to. Namely, they have global sourcing and a good distribution network in Germany that allows them to move product.
That said, it is also clear that very few firms fit within the success parameters of Cantourage. It is also unlikely that regulators here will allow reverse mergers. This means, in effect, that the Frankfurt market has the potential to attract the real and so far, reclusive pools of global capital. Namely of the institutional kind.
This has been so far, the holy Grail of the industry. Institutional investors mean you have made it. It doesn’t mean you will keep it. But it is certainly a distinguishing line in the sand between the “men” and the “boys.”
Recreational Cannabis IPOs and Germany
While there are undoubtedly German companies with Frankfurt on their horizons, the reality is that the bar has been set much higher here, and from the get-go, by regulators who are suspicious of the vertical to begin with. This starts with the exclusion of the entire public industry for a brief period in the summer of 2018 and the continual presence of industry firms on the “watch list” ever since.
Now that there is a domestic industry, and further one that will be federally legal, expect there to be more action on this front. Indeed, Frankfurt could, theoretically, could rival London when it comes to European cannabis finance at least on the public equity markets.
That said, it is also true that German investors generally are far more conservative than either the North Americans or the British when it comes to stock investments.
It is as a result, certainly a good gamble for Cantourage to take this root. How much sense it will make for others in their wake is another story.
One thing is clear. This ain’t the North American public cannabis industry, nor will it ever resemble the same. That said, Frankfurt could well take its place in a global investment industry now looking at the plant and the emerging European industry, in particular, in a whole new way.