Market Analysis

By Eric Vengroff, Senior Financial Analyst

Imagine if you were like Rip Van Winkle and fell asleep, somewhere in Canada, during the fall of 2015.   Instead of waking up 20 years after the American Revolution, you woke up just three years after the Canadian federal election, otherwise known as the Canadian Cannabis Revolution.

You wake up, are handed a mobile device open to the browser and find out that the three most heavily traded stocks on the TSX that day are growing weed. There’s a Canadian company growing weed on the New York Stock Exchange…

You get dressed and head out to a trade show.  You come back with a bag full of material on marijuana companies, products, and vacations (and two free grinders).

Then you read a couple of articles about a U.S. company that just opened up a medical marijuana dispensary on 5th Avenue.  You know that U.S. companies growing weed can’t list on a U.S. securities exchange, and find out that it listed on the Canadian Securities Exchange.  What is that?

Of course, the story I’m referring to above is about MedMen, chain of marijuana dispensaries, that started trading on the CSE, and written covered here.

As USA Today reported, MedMen is one of many American cannabis companies are listing on Canadian stock exchanges.  The reason for this is obvious to capital market participants.   As the first G7 country to (a) propose and (b) imminently enact weed legalization nationally, Canada’s emerging world leadership position in this space is unmistakable.  Medicinal sales have been permitted for some time, and the legalization process will expand and legitimize the market from the consumer to board room.

To be sure, some Canadian companies have gone the other direction, listing on NASDAQ, with Canopy Growth (TSX:WEED) obtaining a NYSE listing.

Of the Canadian equity markets, the Canadian Securities Exchange, ably led by well-known Canadian investment industry leaders such as Thomas Caldwell and Ned Goodman, it was recognized by the Ontario Securities Commission as a stock exchange in 2004.  Market to 380 traded equities, government bonds and structured products, 20% of them cannabis stocks, the CSE is affectionately referred to as the “cannabis stock exchange”.

The reverse takeover or RTO, the mechanism by which a small, but growing enterprise with sales, operations or a following acquires control of a clean, publicly-traded shell, typically a played-out mining or high-tech company, perhaps with a little bit of cash in the till, is the means by which any company, not just in the cannabis space, can avoid the filing an Initial Public Offering or IPO.   The lower capital requirements, and lower filing and regulatory fees of Canadian exchanges also make the Canadian equity markets attractive.  With recreational legalization imminent, many of these companies with this early mover advantage and lower regulatory costs may be able to exploit some of these advantages.

The information and opinions presented here are that of the analyst and do not represent the thoughts and opinions of this website.  The analyst does not own or represent any of the companies listed in this article and receives no compensation from any party mentioned in this article. Readers are urged to do their own research and due diligence and should seek advice from an independent financial advisor before making any financial investment.