On April 10th, the Canadian government provided clarity around its plans for the full legalization of marijuana, including announcing that new laws will be in force by July 1, 2018. While much remains unknown concerning the structure of the legislation and the interplay between the federal legislation and the provincial laws that are sure to follow (the federal government will be responsible for licensing and regulating producers, while the provincial governments will deal with setting prices and determining how marijuana is sold), this is certainly a step forward for marijuana proponents.
Selling Weed to the Public
Given recent valuations seen by companies in the medical marijuana space, many private companies are now looking to access the public markets to raise the funds necessary to execute on their business plans. The manner in which such companies access the public markets will differ based on a variety of factors, including where they are in the Health Canada licensing process. Companies that have obtained their license to cultivate (“LPs”) have the most flexibility while companies that are still in one of the six stages of Health Canada’s licensing process (“Non-LPs”) have fewer options.
Obtaining a listing on the TSX Venture Exchange (the “TSXV”) is the natural choice for most LPs, with a view to ultimately getting upgraded to the Toronto Stock Exchange. However, given the TSXV’s current policy not to list companies that do not have a license to cultivate from Health Canada, many Non-LPs will seek an alternative listing on the Canadian Stock Exchange (the “CSE”). The CSE will generally list Non-LPs provided they otherwise meet the CSE’s listing requirements.
Many companies seeking a public listing on a Canadian stock exchange will find that it is more efficient for them to acquire (usually by way of reverse take-over by way of an amalgamation or plan of arrangement) control of an existing public company rather than doing a traditional initial public offering. For LPs, there should be no shortage of TSXV-listed companies willing to transact with them, particularly if one looks at Capital Pool Companies (a “CPC”), which could offer a cleaner alternative for LPs. The situation is a bit more problematic for Non-LPs, in that it is currently challenging to find a CSE-listed shell company. A creative approach that I have used to address this problem is to have the company transact with a TSXV-listed shell company (note that this shell company cannot be a CPC) and concurrently with the closing of the transaction delist from the TSXV and list on the CSE.
If you are interested in learning more about taking your company public, or if you have other questions concerning your company’s compliance with securities laws, please contact Keith Inman at [email protected] or by phone at 250-869-1195.
Keith Inman is a securities and M&A lawyer with broad experience in the capital markets. Keith regularly advises individuals and companies with respect to capital raises, securities reporting and compliance matters, purchases and sales of businesses and other corporate/commercial matters. Keith is qualified to practice law in both British Columbia and Alberta. You can reach Keith at 250-869-1195 or by email at [email protected].
