Bank of Montreal continues to buck the trend and lend to cannabis companies

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Even as its industry preferred to wait and see, this big bank was willing to lend to ambitious cannabis producers eager to expand. Meanwhile, its retail banking business is growing.


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BANK OF MONTREAL $90.00 (Toronto symbol BMO; Shares outstanding: 644.9 million; Market cap: $58.3 billion; is Canada’s fourth-largest bank, with assets of $839.2 billion.

Most of Canada’s big banks have avoided lending funds to companies in the cannabis industry. That’s mainly due to fears that those loans could hurt their U.S. operations, where cannabis is still a prohibited substance at the federal level.

However, Bank of Montreal continues to lend money to licensed cannabis producers in Canada. For example, it recently provided $140 million in financing to Organigram Holdings Inc. (TSX Venture Exchange symbol OGI).

Organigram will use the proceeds to expand its cannabis production facilities in Moncton, New Brunswick. The company expects to produce 113,000 kilograms a year by the end of 2019. It’s also developing edible chocolate products infused with cannabis.

Bank of Montreal is also helping other cannabis producers expand. Those include WeedMD Inc. (TSX Venture Exchange symbol WMD), which recently received $39 million in financing from the bank.

WeedMD will use those funds to help pay for its $22.6 million purchase of a 98-acre cannabis-production facility in Strathroy, Ontario. It also has a second facility in Aylmer, Ontario.

As well, Bank of Montreal heads up a syndicate of lenders that recently agreed to increase their existing credit facility to Aurora Cannabis Inc. (Toronto symbol ACB). As a result, Aurora can now borrow $360 million, up from its previous limit of $200 million.

The bank may be also willing to lend to U.S. cannabis producers if federal legislation makes it possible.

Meantime, in its fiscal 2019 third quarter ended July 31, 2019, Bank of Montreal earned $1.58 billion. That’s up 1.0% from $1.57 billion a year earlier. Earnings per share rose 0.8%, to $2.38 from $2.36.

The latest results exclude unusual items, including costs to integrate an acquisition. On that basis, the earnings missed the consensus estimate of $2.49 a share.

Earnings from Canadian retail banking (40% of the total) rose 1.2%, while profits at the U.S. retail banking operations (24%) gained 0.8%. In both cases, higher interest rates and loan balances were offset by rising non-interest expenses and credit provisions.

Profits for the bank’s capital markets operations (20%) rose 5.0%, thanks partly to a recent acquisition. However, earnings at the wealth management business (16%) dropped 14.6% due to rising claims at its insurance operations. As a result, the bank is now winding down its most of its reinsurance operation, which provides coverage to other insurers.

Bank of Montreal’s overall revenue rose 15.1%, to $6.66 billion from $5.79 billion a year earlier. However, overall loan-loss provisions jumped 64.5% in the quarter, to $306 million from $186 million. That’s mainly due to higher loan balances and an increasingly uncertain economic outlook.

Bank of Montreal is a buy.


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