Bloomberg: Canada’s Pot Exchange Gets Some Competition

April 28, 2019

Published in Bloomberg on April 28, 2019

Another billion-dollar U.S. cannabis company is going public in Canada, but this one will trade on a little-known bourse that’s beginning to compete with the pot-dominated Canadian Securities Exchange.

Columbia Care Inc., which has operations in 14 U.S. states and territories plus Malta, will begin trading Monday on Toronto’s NEO Exchange under the symbol CCHW. The company will list via an acquisition by Canaccord Genuity Growth Corp., a special purpose acquisition company, or SPAC, with a valuation of about $1.4 billion.

The NEO Exchange, which to date has largely been a listing hub for exchange-traded funds and SPACs, has also attracted some small cannabis companies including Halo Labs Inc. and Maple Leaf Green World Inc.Columbia Care will eclipse these in size, joining major U.S.-focused, CSE-listed pot companies like Curaleaf Holdings Inc., Harvest Health & Recreation Inc. and Cresco Labs Inc. in the billion-dollar-plus club.

NEO considers itself a mainboard exchange and has more stringent listing requirements than the CSE, according to Jos Schmitt, the exchange’s chief executive officer. It currently has more than 70 listings and represents about 10 percent of Canadian trading volume.

For Columbia Care, the NEO offered a smoother pathway to a potential listing on the New York Stock Exchange or Nasdaq if U.S. laws change because its listing requirements are closer to those of the big boards, company CEO Nicholas Vita said.

“I can’t imagine a world where we go to the New York Stock Exchange or Nasdaq and talk to them about a potential listing opportunity without having all these credentials already fully baked and without having a longstanding history of being compliant with those requirements,” Vita said.

Columbia Care is the first in a “very solid pipeline” of upcoming listings from both pot and non-pot companies, NEO’s Schmitt said, adding that he wouldn’t be surprised to see interest from “some of the larger companies listed on the CSE.”

For now, the CSE remains the undisputed leader in U.S. pot listings, with about 65 such companies trading on the exchange, according to CEO Richard Carleton. Those companies raised close to $3 billion last year.

“We have worked closely with the U.S. cannabis industry over the last three-plus years to provide them with access to lower cost of capital, liquidity for early-stage investors and acquisition currency,” Carleton said in an email. “We have a large pipeline of prospective issuers with U.S. assets; we look forward to continuing to serve this important constituency.”

Investors have had another week to digest Canopy Growth Corp.’s pending $3.4 billion acquisition of Acreage Holdings Inc. and they’re still not entirely sure what to think.
Acreage shares fell 1.4 percent last week and are trading well below the current value of the cash and stock deal of $31.59 per share.

The issue is that the deal is contingent on cannabis becoming legal at the federal level in the U.S. Acreage, however, feels that it has an ace up its sleeve in the form of John Boehner, former speaker of the U.S. House of Representatives and a director on Acreage’s board, who can use his political connections to push for legalization.

“John is not a lobbyist, but as speaker of the house he has developed amazing friendships in Washington over the years,” Acreage CEO Kevin Murphy said in an interview last week. “He can make in an hour phone call more ground than I could make over six months.”

Murphy and Canopy CEO Bruce Linton appear to be flexible on how they’ll define legalization (in fact, the press release announcing the deal uses the terms “permissible” and “legal” interchangeably). The passage of the STATES Act, which would free legal states from the threat of federal prosecution, could be enough, they said. Even the passage of the SAFE Banking Act could be enough if it pushes the stock exchanges to change their listing rules to allow companies with U.S. cannabis operations, Linton said.

And if neither of those get through, Canopy “could act and say, ‘I’ve always wanted to be on the Canadian Securities Exchange’ and just drop down and exchange and do the deal,” Linton said. No doubt the NEO will be vying for that listing too.