Pot-Stock Trading Surge Makes TD, CIBC Industry’s Go-To Brokers

(Bloomberg) -- The price surge that has made pot stocks among the most actively traded in Canada is helping one firm more than any other: Toronto-Dominion Bank.

The bank’s TD Securities unit has accounted for 21 percent of the buying and selling of marijuana stocks on Canadian exchanges this year, based on data compiled by Bloomberg that charted trading volumes of 125 pot companies. TD is the top brokerage for trading 13 of the industry’s 20 largest firms, including Aurora Cannabis Inc., The Green Organic Dutchman Holdings Ltd. and Namaste Technologies Inc., the data show.

“Trading volume has been heavily influenced by retail order flow,” TD Securities spokeswoman Lynsey Wynberg said in an email. “TD’s large retail and direct investing platforms have been material factors in overall share."

Pot-Stock Trading Surge Makes TD, CIBC Industry’s Go-To Brokers

Toronto-Dominion and other brokers are riding a wave of interest in marijuana stocks as Canada edges closer to legalizing recreational use of the drug on Oct. 17. Companies including Aphria Inc. and Newstrike Brands Ltd. are trading more shares some days than blue-chip stocks like insurer Manulife Financial Corp. and pipeline operator Enbridge Inc.

The four most actively traded stocks in Canada by value on Sept. 19 were cannabis companies, led by Aurora and Canopy Growth Corp., outstripping Toronto-Dominion Bank and Suncor Energy Inc., according to data compiled by Bloomberg.

Canopy Partner

Trading has surged as retail and institutional investors from Canada and abroad show more interest in the C$56 billion ($43 billion) industry after spirits-maker Constellation Brands Inc. agreed in August to boost its stake in Canopy. The fever heightened this week after Coca-Cola Co. said it was interested in developing cannabis-infused drinks.

Canopy’s stock has more than doubled this year to give the Smiths Falls, Ontario-based pot producer a market value of C$14 billion -- on just C$78 million of annual revenue -- surpassing companies like retailer Canadian Tire Corp., which had C$12.7 billion in annual sales. Canopy’s market value has even eclipsed Barrick Gold Corp., the world’s biggest annual producer of the precious metal. Canopy had long been the largest marijuana company by market value until it was overtaken this week by Nanaimo, British Columbia-based Tilray Inc., which doubled this week alone and is worth about $20 billion.

Canadian Imperial Bank of Commerce’s dominance in electronic trading, which has made it a leader in Canadian equities for most of the past decade, puts the brokerage at the forefront of trading for three of the five biggest cannabis firms: Canopy, Aphria Inc. and Cronos Group Inc. About 23 percent of gross volume of Canadian trades in Canopy, for instance, were handled by CIBC World Markets this year, compared with almost 14 percent with TD Securities, Bloomberg’s Broker Activity Summary shows.

CIBC Clients

CIBC is second in overall pot stocks trading volume because it’s the main Canadian bank-owned brokerage serving the so-called market makers, or firms that add liquidity to the market by rapidly buying and selling in small quantities to make money off the spread without hanging onto shares.

Still, TD Securities leads trading for most of the large marijuana firms, including Emerald Health Therapeutics Inc., CannTrust Holdings Inc. and Supreme Cannabis Co. Many are on a list of 18 cannabis stocks the firm’s investment advisers use for recommending to clients. TD allows advisers to recommend only those cannabis companies listed on the Toronto Stock Exchange or TSX Venture Exchange and that “have no prohibited U.S. touchpoints,” Wynberg said.

TD Securities, which is typically Canada’s largest block trader, also leads cannabis trading for institutional clients. TD Securities accounts for 25 percent of gross trading volume of block trades for the industry this year, compared with 9.7 percent share for Instinet Canada Ltd. and 9.4 percent for RBC Capital Markets. By comparison, CIBC has 7.1 percent share of block trades for pot stocks, while Scotia Capital has 6.7 percent and Bank of Montreal’s brokerage has 5 percent.

Legal Pot

Cannabis companies have exploded onto Canadian exchanges in the past year ahead of legalization of recreational pot. Trading has also been given a boost by an influx of U.S. pot firms seeking Canadian listings as the U.S. grapples with the legalities of the federally banned drug. At least 132 publicly traded companies tied to cannabis are listed on Canadian bourses including the Toronto Stock Exchange, TSX Venture Exchange and the Canadian Securities Exchange.

Still, some of the trading is shifting to the U.S. Tilray, which is listed on the Nasdaq, is the latest darling, trading $5.5 billion in shares on Sept. 19 alone, or more than three times the value for Aurora in Toronto. Tilray stock has now soared more than 10-fold since its July initial public offering. Canopy, which is listed on the New York Stock Exchange, had double the trading volume in the U.S. than in Canada for the week.

Canada began to allow legal access to medical marijuana almost two decades ago, though the industry didn’t take off until 2013 when the government changed regulations to make it simpler for companies to enter the market. Prime Minister Justin Trudeau pledged in the 2015 election campaign to make recreational pot legal, making Canada the first Group of Seven nation to do so.

©2018 Bloomberg L.P.