The Los Angeles-based cannabis company MedMen is listing on the Canadian Securities Exchange today, becoming the latest American pot company to go public in Canada. Like other cannabis companies, MedMen is going public through a reverse takeover of Ladera Ventures Corp. Merging with a public company is becoming a go-to strategy for cannabis companies in both the U.S. and Canada to list on Canadian stock exchanges.
Conflicting cannabis laws between the two countries have created an absurd state of affairs for both Canadian and American cannabis companies hoping to access capital markets: Canadian cannabis companies are listing on major U.S. stock exchanges, while American cannabis companies are heading to the Canadian Securities Exchange, finding themselves unwelcome in the U.S. (except for the OTC markets).
On Thursday, Ontario-based Canopy Growth became the first plant-touching marijuana company to list on the New York Stock Exchange. Cronos Group became the first Canadian cannabis company to list on a major U.S. stock exchange when it debuted on Nasdaq in February. Medical marijuana is legal in Canada, while the government is aiming to legalize adult-use this summer. Meanwhile, the state-legal cannabis industry has flourished into a multi-billion-dollar industry in the U.S. while federal prohibition remains.
“People are going to Canada to raise capital because capital fuels an industry,” said Daniel Yi, communications director for MedMen.
The major U.S. exchanges have deemed the American marijuana industry as too risky of an investment. “They’re wrong… the fact of the matter is that the political atmosphere is very favorable to the industry. Capital will go where capital is needed,” he said.
State-level marijuana reforms have continued despite Attorney General Jeff Sessions’ anti-cannabis rhetoric. President Donald Trump has promised Colorado Senator Cory Gardner that his administration would not go after the state’s legal marijuana industry. Meanwhile, a key congressional committee voted earlier this month to extend medical marijuana protections in an historic vote.
“You’re going to see more and more cannabis companies listing on the major stock exchanges in the U.S.,” said Yi, who predicts that the likes of Nasdaq and the NYSE will one day welcome companies like MedMen. Once that happens, “you’re going to see some migration” from Canada to the U.S., he said. “That’s the beauty of having free markets and open borders.”
But not all is rosy for the marijuana sector. Soaring cannabis stocks in Canada have prompted concerns about overvaluations. Bets against marijuana-related stocks have hit a record high. The total value of short sales is approaching $2.1 billion, reported Bloomberglast week. Meanwhile, Canopy Growth’s shares dropped more than 6% on its first day of trading on the NYSE.
Still, there’s no denying that the global marijuana industry will continue to grow as governments around the world consider marijuana reforms. MedMen currently has operations in three U.S. states. While it does not yet have operations in Canada, the company is planning to partner with Cronos to open retail outlets once recreational use becomes legal in the country.
“At what point does [federal prohibition] become a moot point?” said Yi. As more states liberalize their cannabis laws, the risks of operating in the cannabis industry will decline. “From a capital standpoint, there’s a tipping point, and I think we’re very close to that tipping point.”
By: Mona Zhang, Forbes