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Psychedelics, Cannabis, and the Stock Exchanges
Last week I came across an article examining the 50 (!) Psychedelics companies that are now publicly traded on US stock exchanges – a handful of which we proudly call our customers. Of these, 41 are listed on over-the-counter (OTC) markets, while the remaining nine are traded on either the Nasdaq or the New York Stock Exchange (NYSE). Cannabis, of course, has many, many more public companies. Some of these companies are tiny, with market capitalizations of a few hundred thousand dollars; others are relative giants with market capitalizations in the billions.
Some of the companies referenced in the articles linked above are listed crosswise. Cross-listing occurs when a company can meet the requirements of two or more exchanges and list its securities on each of them. For example, a Canadian-based company that is listed on the Canadian Stock Exchange (CSE) may choose to be cross-listed on a US OTC exchange, or perhaps even a European or Asian market. Companies are cross-listing because selling on multiple exchanges increases the number of investors exposed to the stock, which promotes liquidity and increases stock prices.
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Both cannabis and most psychedelics – especially the classic psychedelic drugs – are federally controlled substances on List I. This means that the leading US stock exchanges (the NYSE and Nasdaq) do not list companies that use these substances ” Act”. The ban exists even though the chances of state enforcement are negligible (at least on the cannabis side) and even if the company strictly complies with state and local laws. There is an exception to the decentralized OTC markets, but many companies don’t want to be there for good reason. As a result, you’ll see U.S. psychedelics and cannabis companies traveling to Canada to list their stocks. But you’ll also see cannabis and psychedelics companies listed on the Nasdaq and NYSE. Why is that?
RELATED: Why Canadian Cannabis Companies With U.S. Businesses Can Still List On NYSE & NASDAQ
The reason for this is that most high-ranking exchanges around the world believe that if a company is legal (and meets various other criteria) in all of its business markets, the exchange will issue a ticker symbol. This is why you see Canadian cannabis companies like Canopy Growth and Tilray, which are listed on the Nasdaq, doing weird things like acquiring options (and options only) on U.S. cannabis companies. These companies doing business in Canada are legal, but they are only allowed to purchase U.S. cannabis outfits and maintain their U.S. senior listings as soon as our federal laws change. The other option, of course, is to stay on the R&D track. Compass Pathways, a psilocybin drug company that we have been writing about for years, is based in England but is listed on the Nasdaq. Compass can do this because its only US activity is FDA-cleared research and patent acquisition.
You might say, “Wait, if a company has to be legal in all of its markets to be listed on a stock exchange, how are all these US cannabis companies listed in Canada?” List exchanges that have relatively lax requirements. For example, we’ve helped some U.S. cannabis companies join the Canadian Stock Exchange (CSE), but none of these companies are listed on the Toronto Stock Exchange (TSX) or the NEO Exchange. The U.S. hemp business is a different story. After the 2018 Farm Bill was passed, the TSX made it clear that it was open to hemp companies. This is because these companies complied with US federal law.
It’s also worth noting that many companies that cannabis companies directly rely on have full access to high-ranking US and Canadian stock exchanges. Scott Miracle-Gro, for example, trades on the NYSE although its wholly owned subsidiary, Hawthorne Gardening Company, is focused on the cannabis production market. Another NYSE company, Innovative Industrial Properties, is a REIT that is solely focused on cannabis. Plus, you’ve got a multitude of businesses (basically the entire economy) another half step away from the factory. It’s starting to get nonsense. It also seems foolish from a tax point of view to push so many domestic US companies overseas. Once federal law changes, these companies will never be allowed to return their assets or profits to their home countries.
RELATED: Time for Nasdaq and NYSE to List U.S. Cannabis Companies
Where we’re going with all of this is pretty clear. Cannabis and psychedelics companies will continue to do whatever they can to raise money on a massive scale. In the context of the public markets, this means that any US company that is a “trader” rather than a research firm will gravitate towards the US OTC or Canadian stock exchanges. Some of the major Canadian companies are still listed here but only operate in Canada or anywhere they can ship. By then, I expect another 50 listed psychedelics companies, countless other cannabis companies, and even more cannabis companies to move into the psychedelics space by then next year.
Vince Sliwoski is an attorney with Harris Bricken, a law firm with attorneys in Seattle, Portland, Los Angeles, San Francisco, Barcelona, and Beijing. This article was originally published on the Canna Law Blog and was republished with permission.
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