Part 2 of 8 of the Cannabis Trends for 2018: U.S. companies run north of the border and IPOs are on the rise.
Over the next year expect an increase of cannabis companies to start going public in Canada instead of the United States. Although the U.S. market has great potential in the long run, there are a lot of short term advantages to going public in Canada.
The first, and most obvious reason, is that Canada has legalized recreational cannabis sales.
Sure, nine states have legalized recreational cannabis, but it’s still federally illegal. US cannabis companies continuously have to look over their shoulders, hoping that the federal government isn’t about to kick down their door and make their business close its doors for good. Not to mention the fact that the entire U.S. market still operates as cash-only, with extremely limited access to banking services.
Put yourself in the position of a cannabis business owner: Would you rather operate in a market that has the *potential* of being more profitable but has no access to banking services and puts you at risk of being arrested? Or would you want to operate in a market that carries little legal risk and you can actually open a bank account? For many entrepreneurs, it’s a pretty simply choice.
One company that is not afraid to do business in both the United States and Canada is Sunniva. Headquartered in Calgary, Canada, Sunniva is on the fast track to becoming one of the first cannabis companies to be licensed in both Canada and California, which is one of the world’s largest cannabis markets.
Legality aside, there’s also the issue listing requirements in the U.S. Companies have to be meet very strict requirements in order to become listed on the New York Stock Exchange (NYSE) or NASDAQ. For example, in order to become listed on the NYSE you need to have publicly held securities that are valued at a minimum of $100 million. Likewise, companies hoping to go on NASDAQ need a pre-tax income of $11 million for an aggregate of three years.
Contrast that with the Canadian exchanges, where companies on the TSX only need a pre-tax income from the previous year totaling $300,000. Those are not the only requirements, of course, but from there you can get a pretty clear idea of how difficult it is to make it on the NYSE or NASDAQ compared to the CSE or TSX.
The vast majority of “cannabis companies” listed on the NYSE and NASDAQ are biopharmaceutical companies, like GW Pharmaceuticals, that aren’t primarily cannabis companies. The only two companies that are purely cannabis companies that are publicly listed in the United States is Cronos Group and Canopy Growth.
With fewer barriers and fewer risks, numerous companies that previously started as U.S. based companies have begun moving operations north of the border and are making preparations to go public. Some of those companies include Acreage Holdings, Dixie Brands Inc., and MJIC Inc.
In the short term, expect an exodus of cannabis companies either going public or completely moving their operations to Canada and expect them to stay there until the United States finally decides to tackle federal cannabis reform.
CannTrust Holdings Inc. (TRST), a licensed medical cannabis producer, announced today that is has been granted approval to commence trading on the Toronto Stock Exchange (TSX), effective March 5, 2018. Shares of the company will continue to trade under the symbol TRST.
Recently the company was awarded a Health Canada Sales License for the 250,000 square foot Phase 1 expansion of its 46 acre Niagara Region cannabis production facility.
As part of its listing on the TSX, the company will voluntarily delist itself from the Canadian Securities Exchange (CSE), effective by the close of trading on March 2, 2018.
“Graduating to the TSX reflects the amazing progress we have made since listing on the CSE in August last year and represents yet another important milestone for CannTrust as we continue our successful journey as one of Canada’s leading cannabis companies” said Eric Paul, Chief Executive Officer of CannTrust, in a statement.
InMed Gains Conditional Approval
In related news, InMed Pharmaceuticals Inc. (IN), a pre-clinical biopharmaceutical company specializing in cannabinoid-based medicines, announced today that it had been granted conditional approval to list its shares on the TSX.
“Graduating to the TSX is a significant accomplishment for InMed,” said Eric A. Adams, CEO and President of InMed, in a statement. “This milestone furthers our corporate goal of securing a leadership position in this high-growth sector. InMed is one of only a few pure-play cannabinoid biopharmaceutical companies to be trading on one of the world’s senior stock exchanges.”
Final approval of the listing remains dependent on the company fulfilling certain customary listing conditions by May 29, 2018. This would include a divestment in any assets held in the United States cannabis industry; where cannabis is still federally illegal. One company, Aphria Inc., has already begun to divest from the US market, and more are sure to follow as Canada prepares launch recreational cannabis sales later this year.
Like CannTrust, InMed will voluntarily delist its from the CSE once granted final approval. Shareholders will not have to change their stock certificates or take any further action.
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