U.S. Cannabis Looking for Safe Haven in Canada
Harsher regulation and possible fed intervention have American cannabis looking abroad when going public
It’s not a secret that there is a distinct fear amongst cannabis companies in the United States that federal intervention and stringent regulation may have a sever negative impact on their business. That’s why MedMen, a cannabis company based in California is looking to Canada as it tries to go public.
MedMen operates production facilities and multiple dispensaries across three states, while employing 700 people. It’s close to being one of America’s largest cannabis companies that is looking to Canada to grow its business. It’s not the first and probably won’t be the last either.
There has been an increase in the number of cannabis companies in America that aim to be listed on the international stock exchanges to achieve their growth potential. That’s where Canada’s market is one of the friendliest, with plans to pass legislation that will legalize medical marijuana nationwide this summer. With the fear of federal intervention and regulatory restrictions in the U.S., many companies are now considering the “up north” option.
“There is this unique situation where people are very excited about an industry, but there are legal and regulatory blocks to opening capital flow,”said Arcview Group CEO Troy Dayton.
Adam Bierman, MedMen co-founder and CEO spoke at the CanaccordGenuity cannabis conference in Vancouver about his plans to execute a reverse takeover of a listed shell company instead of the more difficult initial public offering.
Bierman spoke about the possibilities Canadian legalization brings, “There is so much excitement now around legalization nationally coming in Canada. There is so much excitement about the fact that California, Nevada, Maine and Massachusetts all legalized recreational marijuana.”
“The Canadian public markets offer access to a lot of capital, with a lot of certainty and a lot of speed, and there is this appetite among global investors to invest in a U.S. play,” he said. “Specifically, global investors want to invest in a U.S. play that has California exposure. Now is the time where it makes the most sense.”
Looking at some of MedMen’s sleek and open layout dispensaries, it’s easy to see that they attract a wide customer base. No “hippie stoner” vibe here, just professionalism and client care. The company is also all about encouraging investment into cannabis businesses through its two funds worth about $150 million. Big names in the financial world have been taking notice, such as Chris Leavy, former CIO of Blackrock and Ruth Epstein, former investment banker for Goldman Sachs.
MedMen has rolled the majority of these assets into MedMen Enterprises to get ready for a reverse takeover on the CSE. The listing date is anticipated to be in the second quarter of 2018, as MedMen searches for a partner.
The Toronto Stock Exchange (TSX) is Canada’s largest and currently lists a handful of big names (all based in Canada) in the cannabis industry. Others, along with Canopy Growth, Aurora Cannabis and Aphria boast a combined capitalization of more than $20 billion. The Canadian Securities Exchange (CSE) has more lenient rules, and is trading almost 60 companies in the cannabis field. Many of these are based in the U.S. and the associated market cap is much lower at around $230 million.
The reason many cannabis companies are looking away from the major U.S. exchanges is due to their stringent listing requirements. Investors themselves have long viewed the cannabis industry as too large a risk, even though this mentality has seen rapid changes recently. We’ve seen ETF’s come out, such as the Managers Group’s Alternative Harvest ETF, but as it stands, the majority of institutional investors are still on the sidelines. Not many cannabis companies are large enough to feature on the Nasdaq and NYSE exchanges, which rules out entry for most of the cannabis sector. Things are different in Canada, with smaller companies able to continue developing in the public space thanks to smaller companies doing smaller deals on the exchange. There are also the hurdles in the form of legal restrictions to deal with in the States. Cannabis companies want to grow, but staying completely homegrown in the U.S. doesn’t seem likely at this point in time.