One of Canada's largest banks is moving into marijuana dealmaking.
The Royal Bank of Canada's investment-banking arm will begin advising marijuana companies on takeovers and stock sales, encroaching on territory that has recently been dominated by smaller investment banks like Canaccord Genuity.
"Under certain circumstances with certain customers, we'll participate," RBC Capital Markets head Doug McGregor told Bloomberg in a Tuesday interview. "We're going to be selective in our approach, frankly, but within the bank we've established a policy that we're comfortable with."
RBC also announced in December that it would begin research coverage of the cannabis sector.
RBC joins the Bank of Montreal in initiating coverage of the cannabis sector and actively pursuing deals. The Canadian banks are competing for a slice of an industry that BMO estimates could hit $194 billion globally.
In recent years, small and middle-market investment banks like Canaccord and Roth Capital Partners have boosted their businesses through the thriving market for marijuana companies pursuing reverse mergers to go public on the Canadian Securities Exchange.
RBC's entrance into the industry is a sign that bigger investment banks, once reticent, are becoming increasingly comfortable with cannabis deals. Marijuana is legal in Canada, though it's illegal at the federal level in the US.
In August, Goldman Sachs advised Constellation Brands on the beer maker's $4 billion acquisition of a stake in Canadian marijuana producer Canopy Growth.
And in December, Lazard's Canadian arm advised the marijuana producer Cronos Group in a deal that saw Altria pour $1.8 billion into the company.
Many of these firms, RBC included, don't want to instigate US regulators with their involvement in the marijuana industry.
"We were being careful around cannabis, especially at the start of the year, before some things got clarified with the US authorities," McGregor said.
Perhaps an ode to the bank's Ontario roots, McGregor added: "It's safety first here."
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