Over the coming months and years, more and more U.S. cannabis companies are likely to move north in order to list on stock exchanges in Canada. Many short term and long-term interests are driving this move.
First, Canada recently legalized recreational cannabis years after medical cannabis was permitted in that country. This means that the uniform laws in Canada make that country more attractive (for now) than the U.S. where marijuana companies operating in legal states must constantly look over their shoulders in fear because the federal authorities can take action against them for violating federal laws.
Legitimate cannabis companies in the U.S. constantly feel hunted and moving to Canada can provide some reprieve from the legal issues back home.
The legal issues in the U.S. also make it nearly impossible for cannabis companies to access banking services. Companies conduct all their transactions using cash, and it is hard to find where to keep all that money.
The Canadian environment allows marijuana companies to access some measure of banking services although the bigger banks that have an international presence still keep cannabis businesses at arm’s length due to fears about possible complications in the U.S. and other countries where marijuana is illegal.
Another reason that is driving U.S. marijuana companies across the border to the north is the friendlier listing requirements in Canada when compared to the conditions in the U.S.
For example, only companies that are valued at more than $100 million in publicly held securities can apply to list on the New York Stock Exchange (NYSE). NASDAQ accepts companies whose pre-tax income has been at least $11 million for three years in a row.
Those strict conditions make it hard for marijuana companies to list as soon as they would want in order to access financing to grow and consolidate their positions in the market.
In contrast, the TSX exchange requires a company to have books of accounts that show that the company had at least $300,000 as their pre-tax income the year before they apply to list. Of course there are other conditions, but the income/company valuation differences show how friendlier the stock exchanges in Canada are.
Furthermore, the stock exchanges in the U.S., such as the NYSE, don’t have many purely cannabis businesses listed (partly because of federal laws). Biopharmaceutical companies like GW Pharmaceuticals are the ones one is likely to find on those exchanges. This limits the opportunities for serious market activity for the industry.
Canada has numerous cannabis businesses traded publicly. This provides a vibrant market for companies which want to benefit from the capital that can be got when companies are listed.
As you can see from the factors above, the exodus of U.S. cannabis companies into Canada is likely to continue until conditions back home improve and open that potentially bigger market. Net Element (NASDAQ: NETE), NUGL Inc. (OTC: NUGL) and other companies with interests in the marijuana sector can only hope that the U.S. market opens up sooner.
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