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article image'Green rush' as U.S. cannabusinesses list on Canadian exchange

By Brett Wilkins     May 29, 2018 in Business
Toronto - Some U.S. marijuana businesses are looking to their neighbor to the north and listing on a second-tier Canadian stock exchange in a bid to circumvent federal prohibitions against cannabis.
The Los Angeles Times reports Culver City, California-based MedMen is seeking to become the nation's first billion-dollar cannabis company. But the nation in question would technically be Canada, as MedMen and other companies cannot go public on the New York Stock Exchange, NASDAQ or any other U.S. exchange because marijuana remains a Schedule I controlled substance. That means the government considers the plant as dangerous as heroin, LSD and MDMA, and more dangerous than cocaine, methamphetamine and the opioids that have killed hundreds of thousands of Americans in recent years.
While there has never been a single death reported from using marijuana, federal prohibition — along with its attending banking restrictions — is killing the potential for greater profits sought by U.S. "ganjapreneurs." To skirt these restrictions, MedMen and others are increasingly listing on the Canadian Securities Exchange. The Toronto Stock Exchange, Canada's leading securities market, has adopted a similar stance to its New York counterpart, making the CSE the most attractive option for American cannabusinesses seeking quick cash and greater growth opportunities and legitimacy.
"How do I get that today? I get it by being public on the CSE," MedMen co-founder and CEO Adam Bierman explained to the Times.
MedMen will sell about $100 million worth of new shares, giving investors around a six percent stake in the company. That would value the firm at roughly $1.6 billion, a 60 percent boost over just two months ago. The company says it plans to use the new influx of capital to buy and build out retail stores in New York, Los Angeles and other top markets.
Other companies are making similar moves. Chicago cannabis grower and retailer Green Thumb Industries recently signed a letter of intent to complete a reverse takeover of Vancouver, British Columbia-based Bayswater Uranium Corp. And while uranium and marijuana may seem to have little in common, the deal will allow GTI to go public without launching an initial public offering, the traditional listing route for most companies.
"The market that works best for us right now is in Canada," GTI CEO Pete Kadens told Crain's Chicago Business.
"The terms from U.S.-based investors willing to take a risk on marijuana are pretty brutal compared to what you could get on a public market," added Robert McVay, a Seattle-based partner at Harris Bricken, a law firm that specializes in working with cannabis companies. "It's access to capital without feeling like you're mortgaging your future."
Indeed, while a majority of U.S. states have legalized either medical or recreational marijuana, the Trump administration has taken a hard-line stance against the plant. Attorney General Jeff Sessions has stated that "good people don't smoke marijuana" and that he thought that members of the murderously racist Ku Klux Klan "were okay until I learned they smoke pot."
President Donald Trump has expressed admiration for Philippines President Rodrigo Duterte's war on drugs, in which thousands of dealers, users and others have been killed, usually by extrajudicial execution. Trump even officially proposed imposing the death penalty for some drug dealers in the United States.
Under existing U.S. law, anyone convicted of cultivating more than 60,000 cannabis plants or possessing more than 60,000 kilograms of a substance containing marijuana could technically face the death penalty. In March, Sessions noted this law in a memo to federal prosecutors urging them to pursue the death penalty in more cases involving large-scale drug traffickers.
Many interested observers are on edge.
"There's no doubt that Jeff Sessions intended to and in fact did destabilize the cannabis industry," Denver attorney Sean McAllister told NPR, recounting how a major East Coast investment firm recently backed out of a multi-million dollar cannabusiness deal.
In such an environment, listing in Canada is increasingly seen as the best option for many U.S. marijuana businesses. There are other benefits as well. Canadian markets are valuing some of these companies at as much as 10 times higher than south of the border.
"If you see those valuations, it does become an attractive option—it seems like a way to raise a lot of money quickly," Michael Gruber, a managing partner at Salveo Capital, a Chicago-based fund that invests in cannabusinesses, told Crain's Chicago Business. "It immediately raises the profile of the company and raises the valuation of the company."
Despite the Trump administration's staunchly anti-pot stance, there is a feeling on both sides of the border that legalization is inevitable. The next state to legalize will be the 30th to do so, and cannabis sales are projected to soar from about $6 billion in 2016 to $75 billion by the end of the next decade, according to the financial services firm Cowen and Company.
Ganjapreneurs look to early legalization states like Colorado and Washington, where players who got in early in the game are now reaping huge rewards, as they consider making the move to Canada to get a leg up on current and coming competition.
"It's going to be a massive rush," Dan Nicholls, a director at the Los Angeles cannabis advisory firm Ello, told the Times. "You might see 100 new companies go public on the CSE. Everyone is looking at Canada."
More about canadian securities exchange, Marijuana, green rush, medmen, ianthus capital
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