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California-based cannabis company MedMen wants to go public — in Canada.
MedMen, which operates dispensaries and production facilities in three states and has 700 employees, may be one of the biggest American cannabis companies to look to the north for growth, but it isn't the first, and it certainly won't be the last.
"There is this unique situation where people are very excited about an industry, but there are legal and regulatory blocks to opening capital flow," said Troy Dayton, CEO of cannabis investment and market research firm Arcview Group.
Facing regulatory restriction and fearing federal government intervention, an increasing number of American cannabis companies are looking to list on international stock exchanges. And Canada, which plans to legalize recreational and medical marijuana nationwide by fall, has some of the most "420-friendly" markets around.
MedMen CEO and co-founder Adam Bierman took the stage on Wednesday at a cannabis conference hosted by Canaccord Genuity in Vancouver. He plans a reverse takeover with a listed shell company rather than an initial public offering.
"There is so much excitement now around legalization nationally coming in Canada. There is so much excitement about the fact that California, Nevada, Maine and Massachusetts all legalized recreational marijuana," Bierman said.
"The Canadian public markets offer access to a lot of capital, with a lot of certainty and a lot of speed, and there is this appetite among global investors to invest in a U.S. play," he said. "Specifically, global investors want to invest in a U.S. play that has California exposure. Now is the time where it makes the most sense."
MedMen operates sleek, airy dispensaries that are designed to attract marijuana customers of all types — a far cry from the psychedelic-style head shops of days past. The company also has two funds with about $150 million to encourage investment in marijuana businesses. They caught the attention of some big names in finance, such as former BlackRock Chief Investment Officer Chris Leavy, who chaired the first fund, and former Goldman Sachs investment banker Ruth Epstein.
Most of these assets have been rolled into MedMen Enterprises in preparation for a reverse takeover to list on the Canadian Securities Exchange (CSE), an alternative exchange. Bierman anticipates MedMen will list sometime in the second quarter of 2018. MedMen is currently searching for a partner.
Canada's largest exchange, the Toronto Stock Exchange (TSX), lists few cannabis companies, according to information provided by the exchange. The combined capitalization of big names that are listed there, such as Canopy Growth and Aphria, among others, exceeds $20 billion. All companies currently listed on TSX are based in Canada.
The CSE is a bit more lenient. The exchange currently trades close to 60 cannabis-related companies, many that are headquartered in the U.S. The market caps for these companies are significantly smaller. U.S. companies listed on the CSE, such as Alternate Health and iAnthus Capital, have a combined market cap of about $230 million, according to public information on the CSE's website.
In the U.S., the major exchanges have stringent listing requirements, including revenue and market capitalization hurdles.
This poses a major problem for marijuana companies. Until recently most investors viewed the entire cannabis industry as far too risky. Some creative investment solutions have emerged, such as ETF Managers Group's Alternative Harvest ETF, but most institutional investors still won't touch the stuff.
"To get on NYSE and Nasdaq you have to be huge," CSE CEO Richard Carleton said. "In Canada you continue to be able to develop public companies in the public space. We know how to do smaller deals for smaller companies on the stock exchange."
Continued legal restrictions and hurdles to list on major exchanges in the U.S. are prompting more American cannabis companies to eye Canadian exchanges.
"I have a strong pipeline of Canadian and U.S. companies that have applied to list on the exchange," Carleton said. "That tells me that there is a lot of room to grow in terms of build-out of the legal cannabis structure in the U.S."
The local financial system benefits as well. In this case, Canada will have an advantage on intellectual property, investment dollars and tax money from the cannabis industry, as well as developing investment opportunities in cannabis.
"This is the United States' industry to lose," Dayton said. "Because of the federal-state conflict we have here, countries like Canada, Germany, Brazil, Israel have a unique opportunity to take this industry from the U.S."