Pot producer MedReleaf in for worst Canadian IPO debut in two decades

Markham-based pot producer MedReleaf Corp. fell 22 per cent in its trading debut, the largest decline for a sizable Canadian initial public offering in 16 years, amid growing concern that marijuana stocks are overvalued.

Shares in the company — trading under the ticker “LEAF” — closed at $7.40 on the Toronto Stock Exchange on Wednesday, giving it a valuation of $669 million. The drop is the biggest for a sizable Canadian IPO since Intier Automotive Inc. fell 34 per cent in 2001.

MedReleaf’s chief executive officer Neil Closner declined to comment on the share price, but said being listed on the TSX will contribute to efforts to grow the business. “We’re very optimistic about the growth opportunities ahead,” he said.

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MedReleaf priced its shares at $9.50 apiece last week, raising $100.7 million in the largest initial public offering for a pot producer in North America. It is now the second-largest publicly traded medical marijuana company in Canada, behind Canopy Growth Corp., which became the first pot producer to be added to the S&P/TSX Composite Index in March and has a market cap of $1.1 billion.

MedReleaf’s debut comes amid weakness in the market for pot stocks, after Health Canada said on May 26 that it will make several changes to its medical cannabis program that are expected to result in more licensed producers, increasing supply and competition.

Companies are announcing new marijuana expansions on a daily basis and investors are becoming “jaundiced” and are having trouble differentiating them, said Chris Damas, editor of the BCMI Report in Barrie.

Canopy has tumbled 22 per cent this year, while Leamington, Ont.-based Aphria Inc. has declined 3 per cent and Alberta-based Aurora Cannabis Inc. is down 7.4 per cent.

All marijuana companies rose during the market’s recent “pot mania,” regardless of their investment merit, and the industry is now seeing the opposite as strong businesses like MedReleaf, Cronos Group and Aphria fall in line with “inferior cannabis stocks,” PI Financial analyst Jason Zandberg said. Accumulating shares of market leaders as prices fall may prove to be a profitable trade, he said.

MedReleaf’s IPO was the second for a pot producer in Canada after CanniMed Therapeutics Inc. raised $69 million in December. Other publicly traded companies have listed mainly through reverse takeovers.