Nasdaq Frowns on Canopy Growth Consolidation

Nasdaq called the financial consolidation "impermissible" under listing rules.

Canadian giant Canopy Growth’s (TSX: WEED) (NASDAQ: CGC) proposal to snap up three cannabis companies under a new U.S. holdings umbrella wasn’t taken well by the Nasdaq stock exchange.

While the company suggested on Tuesday that discussions with the exchanges – including Nasdaq and the Toronto Stock Exchange – regarding it’s core business’ ability to consolidate Canopy USA results have been ongoing, company filings with the U.S. Securities and Exchange Commission show that the Nasdaq firmly objected to Canopy Growth’s plan to consolidate the financial results of Canopy USA.

“Nasdaq has proposed that such consolidation is impermissible under Nasdaq’s general policies,” the filing stated.

A Nasdaq spokesperson declined request for comment by Green Market Report.

The TMX Group, which operates the Toronto Stock Exchange, didn’t have the same aversion however.

“Canopy is a great issuer and worked with us directly on what they want to do structurally in the U.S.,” TMX Group CEO John McKenzie told BNN Bloomberg.

Canopy said that it intends to comply with the SEC’s guidance on the application of U.S. generally accepted accounting principles (GAAP) in its financial reporting.

The company also stated in the filings that it “disagrees with Nasdaq’s potential application of its general policies as the basis for its objection since it contradicts the company’s financial reporting requirements under U.S. GAAP including its application to THC plant touching businesses.”

“While we are in regular dialogue with our auditors, regulatory bodies and the stock exchanges, there is no assurance that Nasdaq will harmonize their general policies with the SEC accounting guidance,” the company noted. “As such, there can be no assurance that we will remain listed on the stock exchanges we are currently listed on, which could have a material adverse effect on our business, financial condition and results of operations.”

In other words, the Nasdaq takes issue with the prospect of Canopy’s Canadian core business absorbing the revenue (and losses) of federally illegal, plant-touching U.S. companies it intends to organize under its new proposed holdings.

Under the scheme, Canopy USA would have its own management and board, on which Canopy Growth Corp. won’t have voting rights – though it said it would hold shares of the new entity.

The company is rolling heavy dice in this situation. If Canopy Growth is delisted by the exchange, it could risk serious devaluation and the various the perks that come with a major stock exchange listing, such as banking access.

Investors See Risk Too

Still, some investors and analysts remain unimpressed.

Stifel analyst Andrew Carter downgraded the company to a “Sell” rating after the announcement, citing Canopy’s debt versus the company’s valuations on its businesses.

“Overall, we take a negative view noting the deal does not alleviate Canopy’s risks which are enhanced given Acreage’s financial position,” Carter wrote in a Wednesday report.

According to the risk statements, neither Wana nor Jetty have audited financials, and Carter has said that Canopy has demonstrated a poor track record of executing diligence.

“And we remain unclear why Canopy could not have just showcased pro forma results gauging the impact prior to executing these transactions,” Carter wrote.

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at

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