Canadian Capital Markets As changes in the regulatory regime open up significant opportunities in the cannabis sector, industry players will be seeking access to capital to fund growth, and investors will be looking for a means by which to participate in this emerging market. While cannabis industry participants in the United States face challenges to obtaining public listings on the U.S. stock exchanges due to the lack of harmonization between the U.S. federal and state regimes, Canada has already seen 37 successful cannabis industry listings, with potential for more on the horizon. Canada has three stock exchanges: the Toronto Stock Exchange, the largest exchange; the TSX Venture Exchange, an exchange generally composed of more junior issuers; and the Canadian Securities Exchange, which was formed as a competitor to the TSXV, which markets to entrepreneurs. The TSX currently has approximately 1,500 listed companies, with a quoted market value of more than C$2.2-trillion. The TSXV’s approximately 1,800 issuers have a quoted market value of more than C$23-billion. Currently there are 300 listed companies on the CSE, with a quoted market value of approximately C$4.3-billion. Of the 37 cannabis industry participants listed in Canada, 26 have listed on the CSE, eight on the TSXV and three issuers on the TSX. Eight of these industry participants are licensed producers under the Access to Cannabis for Medical Purposes Regulations and 22 are headquartered in British Columbia.
Obtaining a Listing in Canada One consideration for cannabis issuers and investors looking to cash in on their rising sector is proper positioning to take a company public, which includes operating in a manner that complies with rules and policies of the applicable exchange. Issuers can obtain a listing through a traditional initial public offering, or a more common avenue for emerging companies in the cannabis industry — a reverse take-over of an existing listed issuer. A reverse take-over often involves an amalgamation or issuance of securities of a listed shell company in exchange for assets or securities of the private company, resulting in the private company effectively “going public.” Whereas a traditional public offering can raise timing issues and uncertainty depending on market movements, a reverse take-over may provide a more practical means of providing its initial investors with desired liquidity. At the right valuation, the reverse take-over can be an efficient alternative where a conventional prospectus financing is unfeasible or impractical, and for newly emerging companies provides the benefits of a public listing, secondary market liquidity and access to the capital markets. Access to Capital in Canada and U.S. Cannabis industry participants on each of the Canadian exchanges have already found success accessing capital through the Canadian markets conducting public offerings and private placements under the Canadian regime. As these issuers become more financially robust, we expect to see more graduations up to the larger exchanges with Canada poised to becoming the capital market of choice for issuers and investors. Once a company obtains a TSX listing, it could take advantage of the multi-jurisdictional disclosure system (MJDS) to access capital in the United States. The MJDS regime is a system adopted by the U.S. Securities and Exchange Commission (SEC) and the Canadian Securities Administrators to facilitate cross-border public offerings of securities. MJDS allows Canadian-listed issuers on the TSX that meet certain eligibility requirements to satisfy disclosure rules in the United States through compliance with the Canadian regime. The reverse is true for U.S. issuers raising money in Canada. The regime is particularly beneficial to companies listed in Canada who are looking to access U.S. capital as they are permitted to use Canadian style disclosure, comply with Canadian corporate governance practices and work with their local regulator on all requisite approvals as opposed to the SEC.
Corporate Finance & Capital Markets
Cannabis in Canada: A Changing Legal Landscape