The US MJ Market is Bigger than Canada’s, even with Federal Prohibition
The woes of certain legal laws restricts L.A.’s marijuana dispensary chain, MedMen, from being permitted to trade on Wall Street so this American company went and listed with our neighbor to the North, Canada.
Last week, MedMen began trading on the CSE. (Canadian Securities Exchange)
Nobody is falling out of their seats in disbelief as more US companies are trekking North of the border to list exchanges in Canada.
There are no federal bans on marijuana sales in Canada. The country is in process in legalizing recreational use for cannabis, and medical marijuana is already legal there.
But both countries have found loop holes that work in the favor of different facets of the industry. There are a few Canadian that have made the trip South to list on American Exchanges because they’re not subject to the same restrictions that keep US pot growers away.
Thirty states in the US have legalized medical marijuana, and 10 of them allow it for recreational use. Ironically, MJ companies in the US can’t get basic financial services because of prohibiting federal laws, therefore they cannot be listed on American Exchanges.
“There are no straight roads and there are no clear paths,” said MedMen CEO Adam Bierman.
“From the Canadian perspective, it’s not an illegal activity, from the US perspective, it is,” said Chand Jagpal, chief financial officer for Prime Harvest, a California-based cannabis cultivator, said his company is in the process of listing on the CSE through the reverse merger of a company called ME Resource Corp.
As of late, with the overwhelming attention the Canadian Exchange has been recieving, the CSE is jokingly referred to as the “cannabis stock exchange” because 76 of its 379 companies are in the cannabis related arena.
“Yes, yes, we’ve heard that one,” Richard Carleton, CEO of the CSE, said of the nickname. He said he lists companies “operating within the boundaries of what is a tightly regulated state framework.”
There have been a few financial analysts that have said that it’s in the best interest of the United States to resolve the legalization issue on a federal level.
“If the US doesn’t get its act together and resolve this federal-state conflict, we’re going to lose a business that should rightfully be ours,” said Troy Dayton, CEO of The Arcview Group, a market research firm in cannabis.
A handful of Canadian cannabis companies have made the crossover onto American exchanges, such as Canopy Growth. This is a pure cannabis company that started trading on the New York Stock Exchange on May 24.
“You can list here [in the US] if you’re not breaking any of the rules in any of the jurisdictions that you operate, and I don’t break any rules because I don’t operate in any jurisdictions where it’s federally illegal, which unfortunately includes the US,” said Bruce Linton, CEO of Canopy, which is also traded on the TSX, (Toronto Stock Exchange).
MedMen laid its initial foundation and planted their feet in the ground in Canada back in March of this year. The company executed the entry into their market legally and avoided having to file an Initial Public Offering. It also partnered through conducted business with Canadian MJ producer Cronos Group, which joined the Nasdaq in early 2018.
“It’s a very unique system,” said Charlie Alovisetti, a lawyer with Vicente Sederberg, which advises investors and businesses in the cannabis industry. “Canadian investment is appealing because it allows you to get your foot in the door in the Canadian cannabis industry, while remaining on the right side of the federal law.”
Let’s not forget that last year, Constellation Brands, a US company that owns alcoholic beverage brands like the iconic Corona beer, paid close to $200 million for a 10% stake in Canadian cannabis producer, Canopy Growth Corp.
It appears that it’s the US exchanges that are losing out on fees associated with listings, and the US bankers are losing out on billions in terms of financing.
According to Jason Zandberg, an analyst who covers Cronos for PI Financial; “Exchanges like the CSE are becoming relevant in North America whereas three or four years ago the CSE wasn’t even relevant in Canada,” he said. “We have seen many businesses that have embraced the cannabis sector and have surpassed their competitors that have not.”
The US market is bigger than Canada’s, even with federal prohibition. There’s a lot of money being left on the table with marijuana.
In Canada, medical marijuana revenues totaled less than $500 million last year, according to New Frontier Data, which analyzes the industry. But that’s expected to grow. Lawmakers are working to end federal prohibition of recreational marijuana this year, which could fuel a $6 billion market by 2024, according to New Frontier Data.
But that still wouldn’t top the US, where state-by-state marijuana revenues totaled $8.3 billion last year, according to New Frontier Data. It’s expected to reach nearly $22 billion by 2025.