Despite a stellar start to 2018 on the TSX Venture, led by the high-flying marijuana sector, the market is taking a breather. IPOs financings on the TSX Venture are down 70.9% year to date through to the end of June 2018. As speculators we must know money is usually flowing in or flowing out at a relatively rapid pace on the exchange. Monitoring the number of new company listings is an easy way to gauge confidence in an often cryptic market.
IPO Financings Tank in 2018
Year-to-date in 2017 IPO financings raised $71,456,490 through to June. Fast forward to 2018 and year-to-date financings total just $20,778,720, according to the TMX Group.
Strangely enough, the number of total IPOs actually increased year-to-date in 2018. A total of 48 IPOs occurred through June 2018 compared with just 19 in the first six months of 2017.
While confusing at first, one glance at the Canadian Marijuana Index brings clarity and balance to the situation. Towards the end of 2017, retail investors and venture capitalists made millions in the marijuana sector as the index exploded to new highs, peaking in January of 2018. Much of the money made (at least for those who sold) continues to be parlayed back into various deals. Total financings raised through June 2018 of this year totaled $4.4 billion, compared to $3.7 billion in the first half of 2017.
Canadian Marijuana Index – 1 Year Chart
So, the money is still being invested, but just not at the early stages through an IPO. This is telling to the sentiment and current hesitation in the markets. Weakness in the marijuana sector or concern over policy and over supply, which we’ve written about, may be causing some to pause.
IPO | One Way to Skin a Cat
Also, there are a number of ways to go public on the TSX Venture, not just via an IPO, or initial public offering.
While an initial public offering is sometimes the preferred choice, here are three others:
- Reverse Takeover/Reverse Merger
Often chosen for its speed, this option allows a private company to vend into a currently listed TSX Venture issuer or shell.
- Qualifying Transaction or Acquisition
A CPC is a great alternative to the traditional IPO route. A CPC or capital pool company has cash on hand and is designed to efficiently take private deals public.
- Direct Listing
To qualify for a direct listing a company must be listed on another exchange and meet all of the standard qualifications to list on the TSX Venture.
All other forms of financing, year-to-date from June 2017 compared with year-to-date June 2018, be it through secondary financings (19.4%), supplemental financings (18.1%) and total financings (16.8%) have increased.
What hasn’t increased are the total number of financings, down marginally in 2018 to 860 from 874 in the first half of 2017.
IPO Financings | A Bull Market’s Friend
IPO financings increase in bull markets when optimism is high. The 70% collapse in year-to-date IPO financings is something to take seriously. The TSX Venture is in a technical bear market. After closing at 707 on Wednesday, the exchange is down some 24.7% from its high of 939 earlier in the year. With anywhere from 50-70% of all volume on the exchange taking place in marijuana-related issuers, the health of that sector is paramount to the overall strength of the exchange in the near-term.
While the financings and money raised are all higher year-to-date through June 2018, if things don’t turn around quick I would expect those gains to be lost. The collapse in IPO financings may be the beginning of a prolonged sentiment shift on an exchange known for its booms and busts.
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