Canada remains the destination of choice for U.S.-based cannabis companies seeking the liquidity afforded by a public listing.
While the Canadian Securities Exchange (CSE) has been the dominant vehicle for U.S. companies looking to trade publicly, there is now a newer player in Canada that could be of interest – the NEO Exchange.
The senior exchange made a bit of a splash last April when New-York based Columbia Care (CCHW) started trading on it.
In doing so, the vertically integrated company, which is licensed to operate in 14 U.S. states and territories, became the first company listed on the NEO with a market capitalization of over $1 billion. In fact, the first day of trading saw the company’s market cap go over CA$2 billion ($1.48 billion).
Columbia was able to start trading after setting up a special-purpose acquisition company (SPAC)—a vehicle that may be of interest to U.S. companies seeking a public listing and that offers an alternative to the typical reverse takeover (RTO) mechanism often used for listing on the CSE.
SPACs operate in a similar way to an RTO, but a SPAC company raises money and starts trading on the exchange before a merger happens as opposed to a shell company being involved.
SPACs are available only on senior exchanges where there is greater compliance and regulation and where filings obligations are more extensive.
“When a cannabis company lists with us, it has to live up to the requirements of a main board exchange when it comes to financial controls, governance and so forth,” Jos Schmitt, CEO of NEO, told Investor Intelligence.
Many institutional investors will not invest in companies listed on venture exchanges, he said.
The only other senior exchange in Canada—Toronto Stock Exchange (TSX) – is opposed to offering listings to U.S.-based cannabis companies due to the plant’s federally illegal status in the United States – making the NEO a top alternative.
While cannabis is not the only focus for the exchange, it is a major business opportunity, Schmitt added.
“We don’t want people to think we are another Canadian pot venture exchange; we are a new main board where mature and well-governed companies want to list,” he said. “The cannabis industry is an area of growth where companies are seeking better access to capital and where there are many opportunities for investors.”
In Columbia’s case, the SPAC was an investment group, Canaccord Genuity Growth Corp., that started trading on the NEO on Sept. 20, 2018. It raised CA$40 million to do so. At the completion of the deal, the co-founders of Columbia, Michael Abbott and Nicholas Vita, owned 17.9% and 18.6%, respectively, of the newly formed public company.
SPACs have two years from formation to raise enough money to broker an eventual deal. Otherwise, money must be returned to investors.
Toronto-based NEO has been fully operational since June 2015.
It has a handful of cannabis stocks trading on it, plus cannabis-focused, exchange-traded funds.
Mercer Park Brand, which is linked to a family office group in New York, is the latest SPAC formed specifically to target the cannabis industry and said May 8 it aims to raise $350 million before listing on the NEO.
