Cannabis enterprises enter stock exchange through reverse mergers

Posted on May 30th, 2018 by Global Ganja Report and tagged , , , , , , , , , , .

Shadow WatchWith US stock exchanges still almost entirely closed to cannabis businesses, the stateside industry is increasingly seeking access to the Canadian exchanges in order to secure investment. Taking over publicly traded Canadian firms through reverse mergers has emerged as the critical tactic in this endeavor.

Los Angeles-based cannabis company MedMen is listing on the Canadian Securities Exchange as of the morning of May 29. With a chain of 12 posh cannabis-product boutiques in California and New York as well as a sprawling greenhouse facility in Nevada, MedMen is going public through a "reverse merger" with Vancouver-based Ladera Ventures Corp. 

A "reverse merger," according to Investopedia, allows a private company to go public by taking over a publicly traded "shell company."

MedMen seems to represent the cannabis industry's fast-growing mainstream acceptance. The company bills itself as strictly high-end. It has outlets on Los Angeles' Santa Monica Boulevard and just off New York's Fifth Ave.—the two pre-eminent prestige locations in the United States.  It markets cannabinoid-infused drops and pre-filled vape pens to an upscale clientele. But with any product containing cannabinoids technically illegal at the federal level in the US, stateside stock exchanges are closed even to such stylish enterprises as this one. Listing on the Canadian exchanges was the only alternative to sell shares and expand. 

A Bloomberg profile says that Ladera Ventures "does not have significant operations," but "is seeking new business opportunities to either acquire or participate." Previously, it was involved in oil and natural gas operations in Alberta.

In its public statements, MediMen is portraying the reverse merger strategy as an interim measure before access to US stock markets is won. "You’re going to see more and more cannabis companies listing on the major stock exchanges in the US,” MediMen spokesperson Daniel Yi told Forbes upon news of the reverse merger. 

Yi predicted that the New York Stock Exchange and NASDAQ will soon open their doors companies like MedMen. Then, he said, "you're going to see some migration" from Canada to the US. "That's the beauty of having free markets and open borders."

With more states liberalizing their cannabis laws, Yi rhetorically asked at what point federal prohibition will "become a moot point." He added optimistically: "From a capital standpoint, there’s a tipping point, and I think we’re very close to that tipping point."

And indeed, there are some signs of hope. Also this week, Ontario-based Canopy Growth became the first "plant-touching" cannabis company to list on the New York Stock Exchange. Back in February, Cronos Group of Toronto became the first Canadian cannabis company to list on NASDAQ. But no US-based cannabis enterprise yet lists on either the NYSE or NASDAQ.

It is Toronto that has emerged as the financial center of the cannabis industry. Home of the Toronto Stock Exchange (which hosts Canopy Growth and Aphira Inc, two of Canada's cannabis giants) and Canadian Securities Exchange, the city has traditionally served as financial hub of the mining industry. And this proximity has apparently resulted in an unlikely synergy of the two sectors. 

As New Cannabis Ventures website notes, Toronto-based  cannabis company Supreme Pharmaceuticals now holds gold claims in British Columbia. And Aurora Cannabis of Vancouver went public in 2014 after it executed a reverse merger with Prescient Mining Corporation, a Vancouver-based firm with uranium operations in Saskatchewan.

Canada certainly far surpasses the US in legal cannabis production, and despite the recent cracks in Wall Street's prohibitionist edifice, Uncle Sam is also being left behind by his northern neighbor in the industry's financial sphere. It remains to be seen if state-by-state liberalization will provide a sufficient critical mass to pry open the stock exchanges of New York City—even in the face of ongoing federal intransigence.

Cross-post to Cannabis Now

Photo by Hammer51012  

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