U.S. cannabis companies have been handicapped by bad rules, but there’s a new path that could unleash billions in capital and propel cannabis stocks to never-before-seen heights.
Capital is sweeping onto the shores of the cannabis industry.
So far this year, over $7 billion has been invested in both public and private companies. That’s nearly twice the amount at this time last year.
More impressively, U.S. cannabis companies have managed to raise this sum with their hands tied behind their backs.
Major U.S. exchanges, like the New York Stock Exchange (NYSE) and Nasdaq, require companies that list on their exchanges to comply with a federal law enforced by the Securities and Exchange Commission called the Sarbanes-Oxley Act.
With operating an illegal business under federal law, the inability for U.S. firms to comply cuts off some of the largest pools of investment capital on the planet.
I’m talking about vast pools of money, like those managed by U.S. mutual funds. These institutions oversee about $20 trillion in investments, and almost all of that $20 trillion is invested in stocks that trade on major exchanges.
However, things are changing.
U.S. Cannabis Unleashed
In the U.S., cannabis companies are still technically outlaws. You see, while the 2018 Farm Bill legalized hemp-derived CBD on the federal level, marijuana still has murky legal status.
Now, legislation is wending its way through congress to relieve aspects of this federal versus state law tension, but none, as yet, comprehensively legalizes the sale of marijuana across all fifty states.
And it’s this lack of clarity that prevents most cannabis companies operating in the U.S. from listing on major U.S. exchanges.
That’s because to list on these exchanges, a company must certify that it is acting in compliance with all applicable laws, rules, and regulation – both state and federal. So those companies that grow, transport, process, or sell marijuana can’t make that certification.
Over 150 cannabis companies are already public – with many more to come. Get revenue forecasts, outstanding share information, and business plans for every cannabis company on the market (and some that aren’t yet) right here.
That’s why U.S. exchanges have only allowed companies to list that limit their operations to Canada, where cannabis is 100% legal. Thus, U.S. operators’ only option has been to trade on over-the-counter markets (OTC), or list on smaller exchanges in Canada, like the Canadian Stock Exchange (CSE).
But based on a recent transaction, there is now a new path to this capital.
It found its way onto a major U.S. exchange while still tying its fortunes, and those of its investors, to the growth of legalized cannabis markets. And listing on major U.S. exchanges opens up access to far greater amounts of capital than is available through OTC or Canadian markets.
And as more cannabis companies discover this sort of “loophole,” billions more in investment dollars can now find its way into the top U.S. cannabis companies…
A Groundbreaking Transaction
Akerna Corp. (Nasdaq: KERN) has become the first U.S.-listed, Special Purpose Acquisition Company (SPAC). The company is the result of a merger between MTech Acquisition Corp. and MJ Freeway LLC.
MTech was founded specifically to invest in cannabis companies, with MJ Freeway being the first of these acquisitions.
MJ Freeway is a cannabis technology company that provides seed-to-sale regulatory compliance for other cannabis companies and also provides an enterprise resource planning (ERP) platform.
Using a SPAC to fund acquisitions and then get listed on an exchange is similar to the Canadian RTO structure that has become a popular path for so many U.S. cannabis companies. An RTO is where a shell company that no longer has any operations is taken over by a cannabis company. The shell company already had a ticker that traded on a Canadian exchange. So by taking over the shell, the cannabis company had a much cheaper, and quicker, path to public markets.
MTech accomplished essentially the same thing in the U.S.
It formed a shell company, got a ticker and listing on the Nasdaq, and acquired MJ Freeway. By doing so, institutions and more traditional investors can invest in its stock and own a piece of a company whose fortunes are tied directly to the growth of the cannabis industry.
The dam isn’t fully opened yet, but if more companies start following Akerna’s lead, more money could start flowing into U.S. cannabis stocks.
Executive Director, National Institute for Cannabis Investors
P.S. The cannabis industry is growing at an almost unprecedented rate. In fact, we could see as many as 42 companies IPO between now and Labor Day. And each of these companies has the potential to bring in up to $5 billion worth of wealth for early investors. To be clear, that could add up to $210 billion in the next ten weeks alone. You don’t want to miss out on this opportunity to hit the “sweet spot” of cannabis investing. All you have to do to get started is click here.
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June 25 2019