CanniMed Therapeutics Inc.: The IPO Dilemma

In November 2016, the chief executive officer of CanniMed Therapeutics Inc. was considering the company’s options for raising capital through an initial public offering. The decision was critical for the Saskatchewan-based medical cannabis company, which had been an early leader in this fast-growing sector and was seeking to take advantage of growth opportunities. The company’s history in the space dated back to 2000, when it was awarded a sole source five-year contract from Health Canada to supply Canadians with medical marijuana. Since then, the demand for medical cannabis had grown exponentially, and policy liberalization had opened up prospects for the recreational market. CanniMed Therapeutics Inc. had positioned itself as a leader with extensive experience in research, development, and commercialization. The decision for it to go public was clouded by many burning issues and risks, which led to intense speculation among investors as to whether the firm should be going public at this time and, if so, at what price.

The case is intended for undergraduate- and graduate-level finance courses that are focused on business valuation and/or raising capital. The case deals with the financing decision of a mid-sized firm in the highly regulated and rapidly growing cannabis industry. It presents students with the opportunity to understand the principles of equity valuation through the application of discounted cash flow and relative valuation models. The decision point is clouded by having to determine which industry the firm should be focused on (medical applications or the recreational market) and the ever-changing regulatory environment in which the company operates. After completion of this case, students will be able to<ul><li>understand the prospects of both the medical and recreational cannabis sectors in Canada and the United States;</li><li> assess a firm’s current strategy and future prospects;</li><li>identify the factors that influence the timing of a public offering;</li><li>estimate the market value of a firm given estimates and historical financial information; and</li><li> consider the sensitivity of market values based on the strategic orientation of the firm.</li></ul>

• IPO
• Cannabis
• Capital Markets
• Regulation
• Medical Marijuana