Where stocks trade typically tells you a lot about how established a company is. It says something about the kind of resources the company has to report to regulators and its developed financial strength. But many of cannabis’ greatest opportunities are not on the NYSE or Nasdaq.
At Cannabis Profits Daily, we’ve talked about how investors who moved money into marijuana companies early have made fortunes. Yet there are much bigger windfalls to be made over the coming months and years.
Between the U.S. and Canada alone, industry-watchers predict the $11 billion market will explode to at least three times its current size over the next seven years. And, at the National Institute for Cannabis Investors, we project growth far higher than that.
Given the wealth-building opportunities in publicly traded cannabis stocks, especially with ones that have recently completed an IPO, we want you to know all that you must to take full advantage of this opportunity.
The cannabis industry is new, and the opportunity to build highly profitable businesses is tremendous, so companies are doing whatever they must to raise the capital they need. This capital raising has been further complicated by a U.S. regulatory regime that is moving slower than the industry. So when a cannabis company wants to raise capital from the general public, its best option often is to list its stock in non-traditional trading venues.
Until some antiquated U.S. federal cannabis laws are reformed, cannabis companies based in the United States that touch the plant can’t list on the New York Stock Exchange or Nasdaq, which is where investors are used to trading. International companies, mostly from Canada, can list on these as long as they do no business in America.
That doesn’t mean investors should avoid cannabis stocks on other exchanges that are less known – far from it. Smart investors like yourself know this well. It’s probably why we’ve had member requests to talk a bit specifically about the exchanges on which cannabis stocks trade.
So, whether you’re an old hand at trading stocks or cannabis investing is a whole new world for you, you should take a look at the following valuable information…
Where to Trade the World’s Best Cannabis Stocks
For starters, stocks can trade either on an exchange or over the counter (OTC).
An exchange is a centralized location where stockbrokers announce the quantity of a particular stock they wish to buy or sell and at what price. This price and quantity are advertised to every stockbroker who is a member of the exchange simultaneously, giving all members an equal chance to respond.
Over-the-counter markets are decentralized, though as technology has progressed, these markets behave much like centralized exchanges. Rather than having a central trading floor where all stock trades get advertised and the transactions are executed, if a stockbroker has stock to sell, he or she calls around to other stockbrokers to find someone willing to take the other side of the trade. As technology evolved, stockbrokers would broadcast what they had to sell on message boards.
Now, they post bids and offers for stock electronically, which get advertised to everyone.
That said, trading stocks on many over-the-counter markets is still different enough to merit the distinction. But OTC is by no means worse than another exchange.
In fact, several of the stocks in my Cannabis Investor’s Report members-only portfolio, including my flagship picks, trade over the counter.
NICI’s own stock database – NICILytics – could be the most powerful cannabis investing tool on the market. That’s because we do the dogged research to have the most up-to-date and accurate information in the business. Most financial websites’ information about things like share counts and market caps are outdated or just plain wrong. To find out how NICILytics works and how to get your advantage in cannabis investing, click here now.
Virtually all bonds, and most other financial products, trade over the counter. The two types of markets just represent two different ways of going about finding the market-clearing price for a financial instrument.
Now, the primary exchanges on which many cannabis stocks trade are the Toronto Stock Exchange (TSX), TSX Venture Exchange (TSXV), and the fast-growing Canadian Stock Exchange (CSE). Of course, you also have seen some of the biggest Canadian companies – Canopy Growth Corp., Aurora Cannabis, Cronos Group, etc. – move onto the NYSE, the most liquid exchange in the world, or the Nasdaq.
Where stocks trade typically tells you a lot about how established a company is. It says something about the kind of resources the company has to report to regulators, gives you a sense of its developed financial strength, and helps you set expectations with respect to how liquid the stock is (as well how close the price you ultimately buy or sell a stock for will be to the price you see on your screen).
The main thing that distinguishes stock markets, whether an exchange or OTC, is what their operators require for a stock to be listed. These requirements can include filing requirements with regulators, earning tests, market capitalization thresholds, shareholder distribution, etc. The following breaks down some of these:
- The NYSE has the most stringent requirements. Most all markets require companies to file financial statements with a regulator like the U.S. Securities and Exchange Commission (SEC), but there are exceptions that I will note later. For instance, companies wishing to list on the NYSE must meet requirements such as having pre-tax income greater than or equal to $10 million for the past three years, a market capitalization of at least $200 million for a minimum of 90 consecutive days, an average monthly trading volume of 100,000 shares, and 1.1 million publicly held shares. The quoted price for any stock traded on the NYSE cannot be below $4.00 per share.
- The Nasdaq is less stringent. Companies there can skip earnings and cash flow minimums provided it has a market capitalization of $160 million and total assets of $80 million. Requirements for other exchanges go down from there.
- The TSX and TSXV exchanges are both owned and operated by the TMX Group. The former is for more established companies that can show an operating history while the latter is oriented around providing an exchange-traded marketplace for smaller companies and start-ups. For example, most companies on the TSX have a market cap of just over $100 million while it is between $5-6 million on the TSXV.
- The CSE has no minimums concerning financials, and the market cap of the companies only need to exceed CA$250,000, but its requirements establish some bare minimum requirements around criteria that help create liquidity.
- Over the counter is often the easiest way for U.S. investors to trade stocks of companies based in Canada and can be divided into three categories. A company called OTC Markets operates over-the-counter markets in the U.S. in three tiers: the OTCQX Best Market (the OTC’s highest financial standards, often where large foreign companies list to improve access U.S. investors), OTCQB Venture Market (for early-stage companies that trade for at least $.01), and OTC Pink (no reporting requirement or minimum bid price).
Here’s How You Learn What You Need to Know About an Exchange and Demand of Your Broker
Larger exchanges with more stringent criteria are far more liquid, meaning that stocks trade at narrower bid-ask spreads and you can trade much larger amounts of stock without affecting the stock’s price. But given the early stage of the cannabis industry, it will be some time before most of the stocks can qualify for the NYSE or Nasdaq.
Many of the stocks we recommend currently trade on more than one exchange. With your broker, you may have the option to choose on which exchange to buy or sell your position. You now know what you need to know to pick which one is best for you given your circumstances.
There is one special rule for stocks that trade on the CSE. Just about all cannabis stocks that trade there have an OTC counterpart. This is common with foreign companies – just about all of them will have an American version and often that version trades over the counter. In the case of the CSE, though, exchange authorities work closely with American brokers to ensure that the liquidity of the OTC counterpart of a CSE-listed stock is every bit as good as the shares on the actual exchange.
So after extensive consultations with the management at the CSE, the Institute usually recommends that investors with U.S.-based brokerage accounts trade their shares of CSE-listed companies over the counter. That means that the stock symbol will have five letters ending in the letter “F” and will trade over the counter, but it will have all the liquidity of an exchange-traded stock.
Don’t be afraid of the “F” – in many cases that’s where my Cannabis Investor’s Report members are all set to find the biggest winners over the coming months and years.
Thanks for being an important part of the National Institute for Cannabis Investors,
Executive Director, National Institute for Cannabis Investors
P.S.: We’re about to see an explosion of new cannabis IPOs hit the market. And for smart investors who get in on IPO day, the gains can be incredible. We’re talking about the potential for each of these stocks to soar 200%, 500%, 1,000% or more, practically overnight. And today, we’ve uncovered four potentially high-flying companies set to go public before January 31 that you can’t afford to miss out on. Just click here to find out more.
26 responses to “Here Are Answers to Your Questions About the Various Stock Exchanges”
December 28 2018