Marijuana Business Magazine September 2018

The cost of Canadian public capital is lower than the limited sources of private equity that are avail- able in the United States, and public capital is not available in the U.S. to any great degree. There is a well-established secondary market for cannabis companies, so liquidity is proving to be very good for these companies. That enables some of their early stage investors to take some money off the table at that point. Q What do American cannabis companies absolutely need to know about going public in Canada? A As companies list with us via a listing statement or do a distribution covered by a prospectus, there are things companies need to focus on. The Canadian Securities Administrators have two notices out, specifically directed at companies with U.S. cannabis operations, about the disclosure requirements they’re required to meet in their listing statement or prospectus – and then as a matter of ongoing, continuous disclosure. This relates to their legal position: How are you operating legally in the state where you’re located? What compliance programs do you have in place? How are you ensuring you’ll continue to meet these requirements? What’s the risk analysis if you were to fall outside the operating boundaries that have been set by the state regulatory framework? Q How can a U.S. cannabis company become a reporting issuer in Canada? A Whether you’re a private company in the U.S., or whether you’re already an SEC (Securities and Exchange Commission) filer, you have to become a reporting issuer in Canada to list here. There are three ways: • File a prospectus with one of the provincial securities regulators. Do a distribution of securities to Canadian residents. You can also include U.S. residents through various prospectus exemptions in the United States. • If you’re coming to the market here, and your stock is already widely held in the United States because you’ve done a number of private transactions, then you can do something called a non-offering pro- spectus. The minimum number of shareholders to be listed on the Canadian Securities Exchange is 150. So, you become a reporting issuer, you qualify the securities you have already issued, and you’re good to go. • The most common way in Canada – but is not as common for U.S. cannabis companies – is a reverse takeover, or what is referred to in the U.S. as a reverse merger. That’s when you identify a company that is already listed in the market and you do a transaction where the private company in effect takes over the existing public company and assumes its public company status as a result of the transaction. That transaction is reviewed by the exchange as opposed to the securities regulator, but the disclosure required is identical to that in a prospectus. Some folks believe it’s faster to get to market via reverse takeover, but I’m not sure that’s true. There are also extra costs associated with that approach. Q What are some mistakes you see companies make when going public? A Companies sometimes see their going-public date as the finish of the process. It’s really just the start. The small-cap space in North America is extremely crowded. In the cannabis space there are dozens and dozens (of small-cap companies). So, investor relations and telling your story is an ongoing responsibility if you’re going to set yourself apart from what is a very large range of investment opportunities. It’s a skill that companies need to plan for as they enter the public market. You have to be telling your story constantly to the market for them to be paying attention. We’re a small company ourselves competing with giants, so we know it’s difficult with a small team to devote time and energy. But it’s a requirement, and it needs constant attention. ◆ This interview has been edited for length and clarity. September 2018 • Marijuana Business Magazine • 17