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When a Canadian marijuana company listed on the Nasdaq last week, most in the cannabis industry said it was an important milestone in the fight toward legitimization.
"Every success means future success for the industry. Every successful investment, every successful individual and every successful company brings us closer to legalization," said Patrick Rea, the co-founder of CanopyBoulder, a firm that gives financial backing and advice to startups in the industry.
It is a sign of change even though U.S. cannabis companies remain relegated to alternative exchanges. In the U.S. marijuana is prohibited under federal law, despite being legalized in several states.
Toronto-based Cronos Group owns medical marijuana growing and distribution operations in Australia, Canada, Germany and Israel — all countries where medical marijuana is legal. The company made history last Tuesday by becoming the first "plant-touching" cannabis company, or company that deals directly with the cannabis plant, to list on a major U.S. exchange.
It is also listed to trade in Canada and Germany.
"It is a significant signal that a major U.S. exchange does not have an issue with cannabis, but rather the U.S. federal status," wrote Hadley Ford, CEO of iAnthus Capital, a U.S. cannabis company listed on the Canadian Securities Exchange.
Cronos Group stock isn't the first marijuana-related asset to make it to a major U.S. exchange.
In December, Alternative Harvest ETF, a fund that trades on the NYSE Arca, started investing in marijuana companies — Cronos Group, included. By March, it had increased its assets under management to more than $400 million and given investors access to a basket of marijuana stocks.
But Cronos Group's listing on the Nasdaq represents the first time investors can get behind a specific cannabis stock.
Cronos Group CEO Michael Gorenstein, who grew up in Ohio, left a prestigious career working in corporate law in New York City three years ago to take a risk on the cannabis industry. But his years of experience in law told him starting a marijuana business in the U.S. would be no easy feat.
"I started thinking it was going to be very, very difficult in this federally illegal environment to actually build a global business — which is very rare because when it comes to starting a business, there is usually no better place than the U.S.," Gorenstein said.
So he turned to Canada, where he co-founded Cronos Group, to avoid regulatory snags until things changed in the Lower 48.
"If it's fully legalized tomorrow, we'd enter by 12:01 a.m.," Gorenstein joked.
Stock exchanges have very stringent requirements for companies looking to list, including restrictions on those that have broken federal law, according to Beacon Securities analyst Vahan Ajamian. That means companies based in countries where marijuana is federally legal, i.e. Canada, may meet listing requirements in the U.S., while U.S.-based companies cannot.
U.S. marijuana companies are allowed to list on Canadian exchanges, so long as they fully disclose all risks to investors, but the Toronto Stock Exchange has forbidden it. The world's ninth largest exchange announced in October that U.S. cannabis companies can not meet listing requirements because they violate federal law in their home countries.
There are some options for U.S. companies looking to go public. Eligible companies can list on alternative exchanges, like U.S. over-the-counter exchanges and the Canadian Securities Exchange, but these types of exchanges typically result in less access to major institutional investors. Even if a U.S. marijuana company lists in Canada, Ajamaian said it will likely trade at a discount to Canadian companies, especially after retail marijuana goes legal.
The irony is not lost on California-based cannabis company MedMen, which announced its intention to go public on the CSE in April.
"That's the irony here. You have a Canadian company doing much the same as MedMen does, but they can list on the Nasdaq and MedMen cannot, because of the laws in this country," said Daniel Yi, spokesperson for MedMen.
Listing early on an exchange like Nasdaq can present some major advantages to companies, including giving them global reach and access to professional investors. And most anticipate Cronos Group's move will encourage other Canadian cannabis companies to follow suit. In fact, Canada's largest marijuana company has already expressed its intention to do just that.
Ajamian confirmed that Bruce Linton, CEO of Canopy Growth, announced during a private lunch on Thursday his intention to list the company on the Nasdaq. Ajamian anticipates that could happen in the second quarter of fiscal 2018.
The Canadian market may be getting a leg up over the U.S., but most aren't overly concerned that the Canada will leave its southern neighbor in the dust.
"Canada and other countries have benefited from learning from what has happened in the U.S. [marijuana industry]. The U.S. can now learn lessons from Canada going legal," CanopyBoulder's Rea said.