Investors should expect a rise in cannabis IPOs in Canada — rather than the U.S. — due to the country's legalization of recreational use, according to AxisWire's 2018 Cannabis Trend Report.
Canada possesses more short-term advantages for going public, as cannabis business owners benefit from operating in a market that carries little legal risk.
“Sure, nine states have legalized recreational cannabis, but it’s still federally illegal. U.S. cannabis companies continuously have to look over their shoulders, hoping that the federal government isn’t about to kick down their door and make their business close its doors for good,” the report said.
Canadian company Sunniva, Inc. SNN plans to obtain licensing in both Canada and California, making it one of the first cannabis companies operating in both regions. Both California and Canada are among the largest cannabis markets in the world.
Aside from legality of the sale and use of cannabis, U.S. companies must comply with listing requirements set by the New York Stock Exchange and NASDAQ.
In order to be listed on the NYSE, a company is required to have publicly held securities totaling at least $100 million, while companies looking to be listed on NASDAQ need a pretax income of $11 million over three years. Canadian exchanges require a pretax income of $300,000 in the prior year, the report said.
The report also suggests that a majority of key players within the U.S. industry are biopharmaceutical companies rather than cannabis companies. The numerous companies solely marketing cannabis are largely moving operations to Canada in an effort to avoid barriers and risks to the business.
“In the short term, expect an exodus of cannabis companies either going public or completely moving their operations to Canada and expect them to stay there until the United States finally decides to tackle federal cannabis reform,” AxisWire said.
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