As the country’s licensed producers make big moves in the financial sector, a large part of their funding comes from anonymous investors in well-known tax havens like the Cayman Islands, Bahamas and more.

Canada’s adult-use cannabis market is expected to be fully operational by this summer, and as a result, the year of legal marijuana in Canada has started with a series of mergers and acquisitions unlike anything the industry has seen to date among licensed cannabis producers.

For example, in January, Aurora Cannabis acquired CanniMed for nearly $1 billion, while Aphria acquired Nuuvera for $826 million the following week.

Whether corporate consolidation becomes a trend in Canada or abroad remains to be seen. But as patients and consumers look to a more open market this year, the financial context of these cannabis producers will become more important, such as who is investing in Canada’s cannabis producers and whose money is supporting the rapid expansion.

Cannabis Business Times has found hundreds of millions of dollars pouring into Canadian licensed producers from anonymous sources in well-known offshore tax havens, such as the Cayman Islands, Bahamas, Belize and Barbados.

For example, Aurora Cannabis received $212.3 million from anonymous investment accounts in the Cayman Islands between August 2016 and December 2017, according to financial documents. (Below is a full list of offshore investments in Canadian cannabis producers.) Those investments in Aurora Cannabis preceded the January acquisitions of CanniMed.

In the same time frame, Hydropothecary received $18 million from Cayman Islands investments. In December 2017, the Quebec-based company announced plans to build a new $80-million greenhouse. Hydropothecary’s expansion puts the company “very firmly in the top three, possibly the top two,” CEO Sébastien St. Louis told theOttawa Citizen. “It really puts us in the big producer category.”

Licensed producers contacted by Cannabis Business Times have not responded to requests for comment.

Tax-haven investment sources—or funding from a country that offers foreign individuals and businesses a minimal tax liability with little or no financial information shared with foreign tax authorities (like the IRS)—are nothing new for a major industry. Cannabis, with its rapid legalization and market-share growth rate, certainly isn’t immune.

“[Offshore investing has] been around for a long time; it’s very established,” Morgan Paxhia, managing director and co-founder of cannabis investment management company Poseidon Asset Management LLC, tells Cannabis Business Times. “It certainly can look bad, and if the groups behind it are bad groups, that’s a different point; but just overall, there are completely legitimate groups that just leverage those preferable tax situations when they can. There certainly could be money laundering and supporting of cartels, too, but for us, we have full KYCAML, which is ‘know your client, anti-money laundering’ oversight, so when we have money coming from anything like that, our fund administrators or auditors are asking that question—where is that money coming from?”

And it’s the growing influence of offshore investments over Canadian markets that urges consumers to pay close attention to where the money is coming from.

“In an industry that is trying to get capital, people are reaching as far as they can to find interest,” Paxhia says. “You just hope, though, that these groups are doing their homework. And as much as you do your homework about … your own personal company, you should also be looking at who’s joining your company’s cap table because an investment in a private company is a partnership.”

In the U.S., anti-money laundering statutes are in place to help identify cash sources; the Bank Secrecy Act was established in 1970 and has been updated over the years to guard against drug trafficking, income tax evasion and drug cartel and terrorism funding.

Similarly, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada’s financial intelligence unit that facilitates the detection, prevention and deterrence of money laundering and the financing of terrorist activities, and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) protects against money laundering and the financing of terrorist activities.

“As Canada’s financial intelligence unit, FINTRAC ensures that businesses subject to [PCMLTFA] and associated regulations comply with their obligations, which include implementing a compliance program, record keeping, ongoing monitoring of business relationships and providing FINTRAC with certain financial transaction reports,” Jamela Austria, team leader of communications for FINTRAC, comments in an emailed statement to Cannabis Business Times.

In addition, Finance Canada works to maintain a healthy economy in the country by developing economic management policies and providing advice to the federal government. All foreign investments, regardless of size, are subject to the national security review process under the Investment Canada Act, a spokesperson for the organization tells Cannabis Business Times, in an emailed statement. Under the national security review guidelines, the potential involvement of organized crime is one of the factors the government considers when reviewing an investment, the statement says.

The Canadian government works with provinces and territories to strengthen requirements for corporations to hold accurate and up-to-date information on beneficial owners, which helps law enforcement and other authorities keep tabs on who owns which companies in Canada to counter international tax evasion, money laundering and other criminal activities through the misuse of corporations, the Finance Canada spokesperson adds.

“Strengthening beneficial ownership transparency to safeguard against misuse of corporate entities is a global challenge and requires all countries to implement strong standards for corporate ownership transparency for maximum effectiveness,” the spokesperson says.

And as the cannabis industry matures, both financial-sector observers and investors of all stripes will pay close attention to who is funding what.

“These questions are not different for medical marijuana or for any marijuana than they are for an investment, let’s say, in Apple or anybody else,” Thomas Schultz, president of the Connecticut Medical Cannabis Council and medical cannabis cultivator and retailer Connecticut Pharmaceutical Solutions, tells Cannabis Business Times. “It’s not industry-specific.  … Sooner or later the marijuana industry will become big enough so that our issues begin to very much resemble the issues that everybody else has. … I think this sort of static around the capital structure, sources of capital for our industry, is just a feature of a maturing industry, an industry that’s becoming larger, and it’s becoming a greater part of the national economy and, all of a sudden, like any other industry, questions as to sources of capital become relevant.”

A spokesman for the Autorité des Marchés Financiers (AMF), which oversees the Investment Industry Regulatory Organization in Quebec, declined to comment.

Looking ahead, these investments in Canada may foreshadow similar financial moves if or when the U.S. market matures into full legalization.

“International money [is] already here in the U.S. It’s already happening,” Paxhia says. “We’ve invested in a lot of different companies over the last  [five years], so we’ve invested alongside a lot of international money in U.S. companies. Canada’s a different opportunity set because this international money goes right into the public market. Because it’s federally legal there, they have this massive, thriving public market, capital market activity. That’s why companies like—Canopy Growth, is a great example; [it had a] $200 million bought deal, [a financial arrangement associated with an Initial Public Offering, where an underwriter such as an investment bank or syndicate, purchases securities from an issuer before a preliminary prospectus is filed]. They’re going to be distributing that all over the world. They have investors all over that will be buying into that bought deal. The amount of international interest will only increase over time in the U.S., and exponentially so, because the amount of international investment here is still relatively low.

Using documents made available through the Canadian Securities Administrators and sedar.com, Cannabis Business Times confirmed the following foreign investments in Canadian cannabis producers from 2016 to the present.

AbCann Global
Ontario
Total Cayman Islands Investment: $12.4 million
Other Offshore Investments: $150,000

Aurora Cannabis
Alberta, Quebec
Total Cayman Islands Investment: $212.3 million
Other Offshore Investments: $202,500

Cannabis Wheaton Income
British Columbia
Total Cayman Islands Investment: $88.4 million
Other Offshore Investments: $6 million

CannTrust Holdings
Ontario
Total Cayman Islands Investment: $8.8 million
Other Offshore Investments: $1.9 million

Hydropothecary
Quebec
Total Cayman Islands Investment: $17.97 million

Indiva Limited
Ontario
Total Cayman Islands Investment: $199,500

MariCann Group
Ontario
Total Cayman Islands Investment: $30.4 million
Other Offshore Investments: $50,000

The Green Organic Dutchman
Ontario
Total Cayman Islands Investment: $722,000
Other Offshore Investments: $1.4 million

WeedMD
Ontario
Total Cayman Islands Investment: $2.3 million
Other Offshore Investments: $25,000

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