Canada’s second largest licensed Cannabis producing company, Medreleaf (Leaf), suffered an unexpected drop for their biggest marijuana IPO. With a drop of approximately 28%, this was the worst trading debut for a Canadian IPO in 16 years and also suggests that the “booming” cannabis industry may be slightly overestimated.
This cannabis giant originally valued their shares at C$9.50 a piece and ultimately rose almost a C$100 million for the largest initial public offering for a marijuana grower in North America (valuing the company approximately $900 million dollars). Unfortunately, shares fell as low as C$6.81before bouncing back to C$7.21 as prices regained value, but only partially.
How could one of the largest companies in a booming industry suffer the worst Canadian IPO in over the previous decade? Seeking Alpha believes this event may have occurred because Medreleaf had previously released shares priced at $2.96 in November 2016. Even though the LP stock index decreased 5-10%, the proposed price was 300% of an increase with the general trend of the market. Another issue is that many of the sellers are mainly comprised of high-ranking employees of LEAF, as management or directors. These high ranking members provided no reasoning for their decision to sell and is probable this was their first chance out.
Others in the industry have blamed “investor fatigue” in the Canadian pot industry as the primary culprit for the decrease in price of shares. Matei Olaru, CEO of Lift (an online marijuana marketplace, stated "Valuations in the sector have dropped considerably over the past several weeks, and the MedReleaf IPO was priced under a different market environment, with so many LPs going public, there isn't enough retail demand to sustain all these valuations." Although this industry has been booming in recent years, the lack of legal status and the over abundance of other “pot” companies may also be the cause of this recent disappointing IPO.