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Prohibition Drives Investment Away

MedMen is a cannabis company with around 700 employees and facilities in three states, and like many large American businesses, it intends to go public. An initial public offering (IPO) is a big deal for a company, and a grand opportunity for the public to ride the wave of a new market by purchasing stock, but MedMen’s IPO isn’t going to be 0n an American stock exchange. Even though it is based in the states, the company is looking to go public in Canada.

“The Canadian public markets offer access to a lot of capital, with a lot of certainty and a lot of speed,” said MedMen CEO and co-founder Adam Bierman. “There is this appetite among global investors to invest in a U.S. play. Specifically, global investors want to invest in a U.S. company that has California exposure. Now is the time when it makes the most sense.”

To encourage investment in cannabusiness, MedMen has two funds with around $150 million in them. That’s attracted a few of the more recognizable faces in finance, like Chris Leavy, former chief investment officer at Blackrock, who also chaired the first of those funds, and Ruth Epstein, a former investment banker at Goldman Sachs.

Most of the company assets have been assigned to MedMen Enterprises, with an eye to engineering a reverse takeover on the Canadian Securities Exchange (CSE). The company is still searching for a partner, but Bierman expects they will list sometime in the second quarter of this year.
CSE is not Canada’s largest exchange, that honor belongs to the Toronto Stock Exchange (TSX) which already lists a few cannabis companies like Canopy Growth and Aphria.

Investors, hungry to get a piece of the action, have jumped onto the stocks, and the combined capital of TSX’s cannabusinesses is north of $20 billion. However, thus far only Canadian cannabis companies are listed on TSX, whereas CSE is more open. As a result, many of the smaller exchange’s 60 cannabis-related companies are headquartered in America. The market caps on investment in these companies is much smaller than they are in TSX; American companies have a combined market cap of $230 million, a sharp limit on investment.

Still, hamstrung investment is better than none for companies that are wary that Wall Street investment firms won’t touch them. Institutional investors are highly aware that anyone who buys into cannabis is risking the wrath of the federal government, and recent developments from the Department of Justice aren’t exactly giving them the green light.

While ceding this ground to Canadian markets, it allows America’s biggest cannabis players to start growing without risking a crackdown on American investment firms. It also helps cement Canada as a global leader in the cannabis industry. Canada will not just get investment dollars and tax money, and investment opportunities from CSE, they’ll have an advantage when it comes to intellectual property as well.

“This is the United States’ industry to lose,” said Troy Dayton, CEO of market research firm Arcview Group. “Because of the federal-state conflict we have here, countries like Canada, Germany, Brazil and Israel have a unique opportunity to take this industry from the U.S.”

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