BMO continues lending money to expanding cannabis producers

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This well-known Canadian bank has broken ranks with some other banks by lending money to licensed cannabis producers in Canada. It also plans to lend to U.S. cannabis producers if federal legislation there makes it possible. Meanwhile its quarterly revenue is up 11.3%, earnings climbed 4%, and it yields 4.2%.


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BANK OF MONTREAL $99.96 (Toronto symbol BMO; Shares outstanding: 638.8 million; Market cap: $63.9 billion; is Canada’s fourth-largest bank, with assets of $830.5 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 has provided a $30 million credit facility to Sundial Growers Inc., which produces cannabis at two facilities in Alberta.

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

Meantime, in its fiscal 2019 second quarter ended April 30, 2019, Bank of Montreal earned $1.52 billion. That’s up 4.0% from $1.46 billion a year earlier. Due to fewer shares outstanding, earnings per share rose at a faster rate of 4.5%, to $2.30 from $2.20.

The latest results exclude unusual items, including costs to integrate an acquisition. On that basis, the earnings missed the consensus estimate of $2.33 a share.

Earnings from Canadian retail banking (38% of the total) rose 4.4%, as higher interest rates and loan balances offset rising non-interest expenses and credit provisions. U.S. retail banking (26%) saw its profits jump 16.2%, on strong loan demand and lower credit provisions.

Profits for the bank’s wealth management business (20%) gained 2.6%, partly because rising stock markets (during the quarter) pushed up the value of its assets under administration. However, earnings at the capital markets operations (16%) dropped 11.5% on rising credit provisions.

Bank of Montreal’s overall revenue rose 11.3%, to $6.21 billion from $5.58 billion a year earlier. Overall loan-loss provisions increased 10.0% in the quarter, to $176 million from $160 million.

The bank is also raising its quarterly dividend by 3.0% with the August 2019 payment. Investors will then receive $1.03 a share, up from $1.00. The new annual rate of $4.12 yields a high 4.2%.

Bank of Montreal is a buy.


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