Could US marijuana companies follow Canopy to the Toronto Stock Exchange?

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(This story has been updated to include examples of U.S. cannabis companies that list on the Canadian Securities Exchange.)

Ontario, Canada-based licensed cannabis producer Canopy Growth’s plans to launch Canopy USA to accelerate its acquisitions of three American marijuana companies and remain listed on a major stock exchange might have provided a blueprint for U.S. companies.

American cannabis operators who touch the plant could follow the Canopy road map to uplist from the Canadian Securities Exchange to the Toronto Stock Exchange or the Nasdaq – provided they’re willing to do a major restructuring, experts told MJBizDaily.

While they haven’t indicated they have plans to uplist, U.S. cannabis companies listed on the Canadian Securities Exchange (CSE) include Miami-based Ayr Wellness (AYR.A), New York-headquartered Columbia Care (CCHW) and Chicago-based Green Thumb Industries (GTII).

The upside to listing on the Toronto Stock Exchange (TSX), North America’s third-largest exchange, is that it could help cannabis companies attract more institutional investment.

So far, American plant-touching cannabis companies – such as multistate operators – haven’t been able to raise capital on major exchanges because of the federal illegality of cannabis in the U.S., opting instead to list on the CSE and over-the-counter markets.

And that might still be a problem, at least for the Nasdaq, which expressed objections to Canopy’s plans and could delist the Smiths Falls-based company.

But the TSX has been more receptive, which could provide U.S. plant-touching operators an avenue for uplisting without waiting for the federal government to legalize marijuana or implement other major cannabis reforms.

In an email to MJBizDaily, Catherine Kee, spokesperson at TSX parent TMX Group, confirmed that Canopy worked directly with the exchange and shared its plans in advance of the announcement.

Kee declined to comment on whether U.S. companies could follow.

“We are aware that legislation applicable to the marijuana sector is evolving,” Kee said. “TMX continues to monitor the developments with interest and we remain committed to supporting the enduring success of the cannabis industry.”

In a note, equity analyst Owen Bennett of New York-based investment bank Jefferies Group wrote that the Toronto Stock Exchange’s approval of a Canopy listing could have major implications for U.S. operators through more M&A by Canadian acquirers and/or enabling “U.S. (operators) to adopt the same structure and uplist to the TSX.”

Restructuring ‘gymnastics’

Kelly Fair – a partner with the international law firm Dentons and external counsel to Canopy’s new holding company Canopy USA – told MJBizDaily she’s proud of the creative approach she and the Canopy team have taken to accelerate U.S. market exposure.

Canopy USA will have a ring-fenced structure in which Canopy Growth would hold nonvoting, exchangeable shares in the holding company, segregating those U.S. assets from the rest of the company.

“To the extent that the substructure is embraced by at least the TSX, then that would provide the opportunity to the U.S. (multistate operators to uplist) potentially sooner than a full legalization event – if they wanted to go through the gymnastics to do structuring like this,” Fair said.

Any MSO looking to uplist would have to create a ring-fenced structure between the listed company and the company that’s actually touching the plant or holding the plant-touching entities, she said.

The pros and cons

Matt Karnes, founder of Greenwave Advisors, told MJBizDaily via email that the TSX is more expensive to list on than the CSE, but that it has more liquidity and more stringent listing requirements – which are both more appealing to institutional investors.

He also said Canopy could try to use TSX approval to pressure the Nasdaq to allow U.S. plant-touching businesses to list.

Another hitch, however, is whether Canopy’s auditors will sign off on consolidated financials that include plant-touching operations in the U.S.

“The Big 4 (accounting firms) have not engaged in U.S. cannabis thus far and this could signal a willingness to accept U.S. cannabis clients – a positive for U.S. cannabis as it gives added assurance to institutional investors as to the industry’s legitimacy,” he said.

Whatever happens, Karnes  believes U.S. multistate operators will follow Canopy’s lead, particularly if they don’t want to wait for legislation such as the Safe and Fair Enforcement (SAFE) Banking Act that could pass during this lame-duck session of Congress.

“I think whatever path Canopy Growth USA takes, the MSOs will follow, and they don’t necessarily have to wait to see what happens with SAFE.”

Kate Robertson can be reached at kate.robertson@mjbizdaily.com.