By Omar Sacirbey
Canada-based Canopy Growth recently made history when it began trading on the Toronto Stock Exchange, becoming the first marijuana cultivator to list on a major North American exchange.
The move could spur more Canadian – and possibly even U.S. – medical cannabis companies to list on the exchange, one of the world’s largest.
Moreover, Canada’s federally licensed MMJ cultivators may be positioned to list in the United States, given their legal backing by the Canadian government. U.S. cultivators, by contrast, aren’t expected to list on a big exchange here such as the Nasdaq until the federal government drops cannabis from its Schedule 1 list of the most dangerous drugs.
Observers said U.S. ancillary businesses that don’t touch the plant – such as cultivation lighting businesses, vaporizer manufacturers and tech companies – are the best candidates for listing on a major Canadian exchange like Toronto’s.
“For qualified (American cannabis) companies that would meet the (Toronto) listing requirements, there is opportunity up there for them,” Morgan Paxhia, a managing director with Poseidon Asset Management, a San Francisco marijuana investment firm, said.
“Right now, the Canadians are having no problem raising capital. So if you have a hot, growing, U.S. ancillary business, you do have an opportunity to do a list up there.”
It’s advice Paxhia has given Surna, a Boulder, Colorado-based company that makes water-chilled climate control systems for cannabis cultivators. Paxhia, a member of Surna’s board, said the company – which trades on the OTCQB over-the-counter market – wants to list on a major U.S. exchange but is open to Canada.
“Capital flows to where it’s treated best,” Paxhia said. “Canada clearly has an active cannabis market, and their public markets have no problem raising pretty significant capital with true investment banking underwriting.”
In fact, several Canadian MJ companies have raised tens of millions of dollars from Canadian investors recently, including Canopy and other licensed cultivators such as Aphria and OrganiGram.
“I’m surprised we don’t see more U.S ancillary companies trying to list up here because our capital markets are very friendly,” Paul Pedersen, a Vancouver-based cannabis consultant with Greywood Partners, said.
Canopy’s Toronto listing comes a little more than two months after the Nasdaq rejected a listing application from MassRoots, a Denver-based canna-centric social media company with about 700,000 users.
In a press release, MassRoots said the Nasdaq linked its decision to the argument that the company, as a pro-marijuana business, could be considered as aiding and abetting the distribution of a federally illegal substance.
Growers a harder sell in U.S.
Would MassRoots and other other U.S. cannabis companies aiming to go public have a better chance in Canada, where medical marijuana is legal and recreational MJ is expected to be legalized in 2017?
It depends. Pedersen noted a handful of U.S. ancillary cannabis companies and at least one dispensary company are listed on the TSX Venture Exchange, the electronic exchange owned by the parent of the Toronto Stock Exchange.
Toronto’s main exchange, however, would be a harder sell for U.S. cannabis-touching companies.
“The challenge with U.S. cannabis-touching companies is that while they are legal in some states, their federally illegal status is a problem,” Pedersen said.
Paxhia also doubts U.S. cultivators will list on an exchange like Toronto’s or attract money from Canadian investment firms.
“Until this Schedule 1 issue is resolved, there’s really no appetite for a fully underwritten IPO on the exchange because they don’t even feel one that they could get through their own compliance at the investment bank level,” Paxhia said.
Toronto Stock Exchange officials declined to comment.
Canadian companies in the U.S.?
While U.S. companies may be mulling Canadian stock markets, it’s also possible the bigger federally licensed cannabis cultivators in Canada could be weighing the possibility of listing on a major United States stock market.
Canada’s federally licensed medical marijuana growers could have the legal standing that makes investors and stock market officials more comfortable about listing them.
“I wouldn’t be surprised at all to see one of these Canadian producers come down and do an ADR (American Depository Receipt) underwritten by a traditional bank,” Paxhia said.
An ADR is a stock that trades in the United States but represents a certain number of shares in a foreign corporation. ADRs are bought and sold on American markets just like regular stocks. In the United States, traditional banks or brokerage firms issue ADRs.
Paxia points to Aphria Inc., which recently raised $30 million. Aphria also listed on the OTCQB market in June, Paxhia noted, but may have greater ambitions.
“It’s almost like they’re sending a signal that if this capital raise goes well and they have good strong U.S. investor demand for this deal, this is their way of setting the stage to then take their OTCQB (listing) and up-list it to the Nasdaq or something,” Paxhia said.
At least one foreign cannabis-touching company with federal permission to grow cannabis already trades on the Nasdaq: GW Pharma, the United Kingdom-based manufacturer of Epidiolex, a CBD-based medicine used to treat pediatric epilepsies that is undergoing U.S. Food and Drug Administration-approved studies in this country. The company grows cannabis in the United Kingdom, processes it into a syrup, then ships the medicine to the United States for the FDA tests.
Having federally legal status may not, however, be enough for Canadian MJ growers to break into a major U.S. stock market, Maxim Jacobs, head of healthcare research at Edison Investments in New York, said.
GW Pharma is strictly regulated. But the compliance hoops Canadian cultivators go through may not satisfy U.S. exchange officials.
There could also be legal concerns if cannabis from a Canadian cultivator listed on a major U.S. market enters the U.S. black market, Jacobs said.
“If any of their marijuana gets into the United States, could Nasdaq be considered as facilitators of financing of drug dealers?” Jacobs asked. “I could see this causing a lot of problems.”
Omar Sacirbey can be reached at [email protected]