The Evolution of the CSE in the Global Cannabis Industry
August 6th, 2019
Policy, Top News
There’s no doubt that cannabis has been a game-changer for the Canadian capital markets. After Canada liberalized its medical program in 2012, companies immediately began approaching the Canadian Securities Exchange (CSE) to raise the capital required to build indoor greenhouses and participate in a market that they knew would continue to grow over time.
In 2015, U.S. cannabis companies began to capitalize on state-by-state cannabis legalization frameworks. They couldn’t raise capital in the United States due to the plant’s federal status, which meant that they turned to Canada and the CSE to raise the capital that they needed to fund massive projects. These trends really began to expand in 2018 with multi-state operators.
Zuber Lawler’s Managing Partner Tom Zuber recently interviewed CSE CEO Richard Carleton in CFN Media’s studio in a three part series:
What Makes the CSE Unique?
There’s no doubt that it’s easier to be a public company in Canada than the United States. From exchange fees to officer insurance, the regulatory burden and cost of being a publicly traded company is much lower. These lower costs make the country more attractive for smaller businesses that cannot afford the significant costs of a U.S. listing.
For example, Canada has become a go-to country for oil and gas and mining exploration companies looking to raise under $10 million with market capitalizations of around $20 million to $50 million. By comparison, most companies that go public in the United States need to raise hundreds of millions of dollars and achieve market capitalizations of $1+ billion.
The CSE’s approach to the cannabis industry, in particular, has also set it apart from other exchanges. Rather than taking a paternalistic approach, and making judgements on companies, the exchange is focused on ensuring that each company’s disclosure is complete and understandable by retail investors, who can then make their own informed decisions.
U.S. Companies Look to the CSE
The Canadian Securities Exchange began to see U.S. issuers interested in listing on the exchange in late 2015. While the exchange had already listed Canadian cannabis companies, the decision to list U.S. companies was complicated by the fact that they had to provide an opinion that businesses would operate under applicable laws in their jurisdictions.
While the Controlled Substances Act made it difficult to make that assertion, the exchange focused on helping companies come up with a complete disclosure that outlined those risks and helped investors understand them in detail. The SEC had also approved a prospectus for a U.S. issuer that touched the plant by that point, so there was some support south of the border.
By 2018, U.S. multi-state operators, or MSOs, began to approach the exchange. These listings were significantly more complicated than companies focused on a single state since the disclosures were much longer. Many of these companies also had complex cap tables with multiple share classes, which made it hard for investors to determine valuations.
What’s Next for Cannabis & the CSE?
The cannabis industry certainly shares some similarities with the rise of Internet companies. Many companies have achieved lofty valuations, including many Canadian cultivators, but there will be many long-term winners that emerge from the current market conditions. For example, Amazon’s and Google’s of the cannabis industry may already be present.
The global cannabis industry also continues to emerge. In addition to North America, Europe is quickly becoming the next major growth market. Many countries are liberalizing their cannabis laws and the CBD wellness market is already very well established. Many Canadian companies are quickly moving into the space to fill the void with joint ventures and investments.
For the CSE, the big question is whether they will continue to be a winner after legalization takes hold. The legalization of cannabis in the U.S. could open the door to U.S.-based listings, where the capital markets run much deeper. The answer to that question remains to be seen, but for now, the CSE continues to be the go-to exchange for cannabis companies around the world.
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About CFN Media
CFN Media (CannabisFN) is the leading creative agency and media network dedicated to legal cannabis. We help marijuana businesses attract investors, customers (B2B, B2C), capital, and media visibility. Private and public marijuana companies and brands in the US and Canada rely on CFN Media to grow and succeed.
CFN launched in June of 2013 to initially serve the growing universe of publicly traded marijuana companies across North America. Today, CFN Media is also the digital media choice for the emerging brands in the space.
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