Pot firms go pub­lic in Canada

Locked out of U.S. cap­i­tal, com­pa­nies head north for cash

South Florida Sun-Sentinel (Sunday) - - Money - By Gil­lian Flac­cus As­so­ci­ated Press

PORT­LAND, Ore. — Green Thumb In­dus­tries had a busi­ness plan, ex­per­tise and plenty of am­bi­tion to grow its mar­i­juana busi­ness. What the Chicagob­ased com­pany didn’t have was ac­cess to enough cap­i­tal to make it all hap­pen.

So last month, the com­pany with $20 mil­lion in rev­enue from pot shops in seven states turned its gaze north and went pub­lic in Canada, where mar­i­juana soon will be broadly le­gal­ized na­tion­wide.

The Cana­dian Se­cu­ri­ties Ex­change is quickly be­com­ing the go-to place for U.S. cannabis com­pa­nies or­phaned by their own stock ex­changes be­cause the U.S. gov­ern­ment still con­sid­ers mar­i­juana an il­le­gal drug.

Green Thumb took over a pub­licly traded Cana­dian com­pany, added an “Inc.” to its name and went pub­lic. The com­pany raised U.S. $67 mil­lion, money that will al­low Green Thumb to get li­censes in new states and open more re­tail stores across Amer­ica.

“The phone rings more, we’re talk­ing to more peo­ple, and busi­ness has ex­panded,” com­pany founder Ben Kovler said. “We’re just ex­cited about what’s hap­pen­ing.”

In re­cent months, prom­i­nent U.S. pot com­pa­nies in­clud­ing MedMen, Lib­erty Health Care and Chal­ice Farms have listed on the Cana­dian Se­cu­ri­ties Ex­change, rais­ing cap­i­tal and draw­ing at­ten­tion from wealthy in­vestors in Asia, Cus­tomers line up for recre­ational mar­i­juana out­side of MedMen, a dis­pen­sary in West Hol­ly­wood, Calif.

Europe and Aus­tralia who want to make a play in the cannabis in­dus­try but are spooked by the U.S. fed­eral pro­hi­bi­tion.

Many more U.S. mar­i­juana com­pa­nies are lined up to join them as the U.S. in­dus­try quickly ex­pands. Acreage Hold­ings, one of the United States’ largest ver­ti­cally in­te­grated cannabis com­pa­nies, an­nounced Mon­day it will list on the Cana­dian Se­cu­ri­ties Ex­change this fall be­cause it’s be­come the “ex­change of choice for U.S. com­pa­nies like ours.”

Two-thirds of U.S. states now al­low med­i­cal mar­i­juana, and nine of them and Washington, D.C., have le­gal­ized recre­ational use. Last month, vot­ers in Oklahoma ap­proved med­i­cal

mar­i­juana, fur­ther ev­i­dence of the erod­ing op­po­si­tion even in con­ser­va­tive states.

U.S. com­pa­nies need quick ac­cess to money to snap up lim­ited pro­duc­tion and re­tail li­censes so they can quickly es­tab­lish them­selves in new mar­kets.

“If you don’t get in and get on, you’re out,” said Wil­liam Simp­son, founder of Chal­ice Farms, an Ore­gon com­pany that was ac­quired last year by a pub­licly traded Cana­dian com­pany called Golden Leaf Hold­ings. “Time is of the essence. You need money now, and you need it yes­ter­day.”

Last week pro­vided ev­i­dence of Amer­i­can in­vestors’ will­ing­ness to jump into the mar­i­juana mar­ket if given the chance. U.S. stock ex­changes will not list com­pa­nies

that do busi­ness where mar­i­juana is il­le­gal, but sev­eral Cana­dian com­pa­nies trade in the U.S. be­cause their busi­ness is le­gal in the coun­try where they are based.

Til­ray Inc., a Bri­tish Columbia-based med­i­cal mar­i­juana com­pany, be­came the first cannabis busi­ness to com­plete an ini­tial pub­lic of­fer­ing on a ma­jor U.S. stock ex­change when it be­gan trad­ing on Nas­daq. It raised $153 mil­lion and the stock jumped nearly 33 per­cent on its first day of trad­ing.

Chris Barry, a part­ner at the Dorsey and Whit­ney law firm in Seat­tle, han­dles mar­i­juana in­vest­ment deals and merg­ers in the U.S. and Canada. He noted that ma­jor in­sti­tu­tional in­vestors,

in­clud­ing the cen­tury-old New York in­vest­ment bank Cowen, were in­volved in Til­ray’s IPO.

“The les­son is that the in­sti­tu­tions will be there if you have a good busi­ness plan and your busi­ness is 100 per­cent le­gal in the ju­ris­dic­tion you’re in,” he said.

That’s the prob­lem in the U.S. While more states ap­prove le­gal mar­i­juana, the fed­eral gov­ern­ment — and es­pe­cially At­tor­ney Gen­eral Jeff Ses­sions — re­main op­posed, cre­at­ing un­cer­tainty for banks and in­vestors.

“There’s pent-up de­mand all over the world, and all over in the U.S., and it’s all get­ting forced into Canada,” said Troy Day­ton, chief ex­ec­u­tive of The Ar­cview Group, an Oak­land, Calif.based cannabis in­vest­ment and mar­ket re­search firm. “Ev­ery large in­vestor and ev­ery large com­pany is sali­vat­ing over this mar­ket now, but they’re held back be­cause of the un­cer­tainty.”

Mean­time, U.S. con­sumer spend­ing on mar­i­juana is ex­plod­ing. It was $8.5 bil­lion in 2017 — the year be­fore Cal­i­for­nia be­came the world’s largest le­gal mar­i­juana mar­ket — and is pro­jected to reach nearly $24 bil­lion in the next four years, ac­cord­ing to Ar­cview.

U.S. com­pa­nies that list in Canada are see­ing eye­browrais­ing val­u­a­tions be­cause in­vestors hun­gry to get a piece of the cannabis ac­tion have nowhere else to go, Day­ton said.

Some of those com­pa­nies will im­plode, but the ones that are well-po­si­tioned will be able to use the new cash flow to pre­pare to com­pete with the multi­na­tional al­co­hol and cig­a­rette con­glom­er­ates po­si­tion­ing them­selves to swoop in, he said.

“You look at Cal­i­for­nia by it­self, Florida by it­self, they are both larger alone than the en­tire Cana­dian cannabis mar­ket­place,” said Simp­son, founder of Ore­gon’s Chal­ice Farms. “It is a mas­sive op­por­tu­nity.”

Chal­ice was ac­quired last year by Cana­dian-based Golden Leaf Hold­ings. Al­most all of the com­pany’s busi­ness re­mains in the Amer­i­can West, and it’s us­ing the $19.5 mil­lion from its pub­lic list­ing to pur­sue cul­ti­va­tion deals in Ne­vada and Cal­i­for­nia.

Simp­son said it’s frus­trat­ing he couldn’t go pub­lic as an Amer­i­can com­pany.

“The peo­ple have spo­ken. We voted for this,” Simp­son said. “Al­low the banks and the in­vestors to get on board.”

RICHARD VO­GEL/AP

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