The Cannabis Industry's Go-Public Frenzy: A Chat With Companies That IPOed This Year

The first half of 2018 was a notably active period in the cannabis industry, particularly on the capital markets side. Over the first six months of the year, more than $4 billion in investments were made in the industry, according to Viridian Capital Advisors.

Some of the most notable transactions were cannabis companies that went public; here are some of the largest IPOs that took place between January and the end of June:

  • Canopy Growth Corp CGC listed on the NYSE.
  • Khiron Life Sciences Corp  (TSXV: KHRN) KHRNF began trading on the TSX Venture Exchange.
  • Green Organic Dutchman Holdings Ltd TGOD TGODF went public in Canada.
  • MedMen Enterprises Inc. MMEN MMNFF began trading on the CSE.
  • Cronos Group Inc CRON listed on the Nasdaq.
  • Green Thumb Industries Inc GTBIF GTI debuted on the CSE.

Analysts have diverse interpretations of the go-public trend in the marijuana industry. Some see it as a quick cash grab; others perceive it as a sign of consolidation in the industry; and other observers believe it’s a natural result of the maturation of the space.

Benzinga reached out to the newly public cannabis businesses and asked why they decided to list their shares now.

MedMen's Market Cap: $1.5 Billion

An IPO was part opf MedMen's larger strategy, said Daniel Yi, the company' ssenior vice president of corporate communications. 

“At this stage of the evolution in the cannabis industry, capital is key. This is a nascent industry and everybody's fighting for real estate, and the only way to acquire real estate is to have the capital,” he said.

Commercial banks won't loan to cannabis companies, making private equity, venture capital or the public markets a necessity, Yi said.

"We have been building this company for eight years and intend to be here for 80 more,” he said, adding that MedMen is a multigenerational project that aims to become the Anheuser Busch Inbev NV (ADR) BUD of cannabis.

The higher-than-usual number of companies that went public in the first half of 2018 could be attributed to a mix of chance and the market's natural evoluton, Yi said. 

“You've got an industry that is growing at 25-30 percent a year that's going to reach a $75-billion market size in the next decade or so ... so it's a gold rush. And people are realizing this is a legit industry.”

Cronos Group's Market Cap: $1.1 Billion

Cronos works to be an industry leader and was the first of its kind to meet the qualifications for listing on the Nasdaq, said CEO Michael Gorenstein.

“This was a great achievement and signifies not only the institutionalization and developing maturity of the industry, but also sets a standard for the leaders in the industry. For Cronos, it gives us access to U.S. capital markets and reach into a new investor base while increasing liquidity and elevating our corporate brand equity," he said.

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Canopy Growth's Market Cap: $5.6 Billion

“Choosing to list on NYSE was a no-brainer for us,” Canopy communications specialist Caitlin O'Hara told Benzinga. “We've always been focused on leadership, vision and integrity, and listing on one of the most prestigious exchanges in the world validates the level of execution and ambition our team here at Canopy has demonstrated over the past five years."

Canopy is focused on research, product innovation and intellectual property, O'Hara said. Its NYSE listing followed its a 2014 listing on the TSX Venture Exchange and subsequent uplisting to the TSX in July 2016, both of which were industry firsts, she said.

"We look forward to the road ahead, including the upcoming legalization of recreational cannabis in Canada and the rapidly expanding global medical cannabis market."

The Green Organic Dutchman's Market Cap: $1.4 Billion

The public markets provide a "tremendous opportunity" for both domestic and international companies to fund their operations, said CEO Brian Athaide.

The TSX is the premier stock exchange for cannabis companies globally, while the CSE is the preferred stock exchange for U.S>-based cannabis companies, he said.

“The capital markets provide an innovative way to fund operations in a capital-intensive industry,” Athaide said, adding that “many more companies will look to access the public markets as countries around the globe continue toward legalization."

Marijuana is an emerging sector with broad demographics and a potentially global customer base, the CEO said.

"We anticipate as Canadian federal legalization is solidified and [individual] states continue to experience the ‘domino’ effect of acceptance for medical often followed by recreational cannabis, it is more than likely the international community will also soon follow.”

TGOD raised $160 million while operating privately, but going public provides capital for a rapid international expansion and the development of cannabis-infused beverages, Athaide told Benzinga.

Khiron Life Sciences' Market Cap: $40 Million

Canadian capital markets are now the markets to raise funds for medical cannabis, and that is clearly reflected in the rapid surge of the market caps of Canadian cannabis companies, said Khiron CEO Alvaro Torres.

“We operate in Colombia and want to sell cannabis products to the Colombian market. However, liquidity is not enough to raise capital there … since the most sophisticated medical cannabis investors are in Canada, so we thought we’d raise capital there [and deploy in Colombia]," he said.

Khiron's IPO marks the company's third funding round as it develops a strategy to supply medical cannabis for the Colombian market — rather than exporting like most other international players in the South American country. 

“In addition, being a public company gives us tremendous advantages and credibility because we did a lot of due diligence,” Torres told Benzinga.

The May timing was coincidental and came after a $12-million fundraising round; the January application for the TSX; and the reverse takeover of a shell company, Torres said. 

"It was fortunate timing, because we skipped the February-March downfall and started trading when the market rebounded, on the same day Canopy Growth started trading on the New York Stock Exchange.”

Green Thumb Industries's Market Cap: $1.2 Billion

American cannabis companies have "tremendous" opportunities as capital markets open to them and the sector continues to legitimize, said Ben Kovler, Green Thumb's founder and chairman. 

“The shift in institutional investor sentiment within the space is apparent, and investors are waking up to the opportunities in the cannabis sector," with $1 billion raised in the sector in recent weeks, he said. 

“We are in the early innings of the cannabis industry, and it’s a critical time for capital allocation and strategic growth." 

Photo by Javier Hasse.

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