Los Angeles-based cannabis company MedMen is listing on the Canadian Securities Exchange (CSE) on Tuesday through a reverse takeover of oil and gas shell Ladera Ventures Corp. The acquisition makes the company, hailed by some as the “Apple Store” of cannabis retailers for its tech-forward, high-end experience, the second U.S.-based cannabis company to list on the alternative stock exchange. The company will be listed under the symbol “MMEN.”
MedMen has raised “a little over US$119 million” on its investor roadshow over the past two and a half weeks and has an enterprise value of $1.65 billion says Adam Bierman, MedMen’s co-founder and CEO.
“At this point in time there is no real comparable opportunity for (Canadian investors), they can certainly buy Canadian licensed producers of which there are a handful of really great opportunities,” Bierman told Yahoo Canada Finance. “But this is the first time that people around the world are getting a pure U.S. opportunity.”
The CSE has become a haven of sorts for cannabis companies, with 67 currently listed on the exchange including several with operations in the U.S. Top-tier exchanges – the TSX and TSX Venture Exchange – are still in the midst of sussing out a policy with regulators for cannabis companies with operations in the U.S., according to a report by BNN.
Despite marijuana being legal for either medicinal or both medicinal and recreational use in 29 U.S. states (as of March 2018), it is still illegal on a federal level and therefore most major U.S. exchanges won’t list cannabis companies with a U.S. presence.
“Canada has been the hub for investors that wanted to get access,” says Bierman. “You’ve got some really strong players that have emerged and I think that they have real sustainable business models.”
Then there are operators who have benefited from the so-called green rush.
“Perhaps what it means for Canada is the culling of the herd, the line in the sand for when that begins,” adds Bierman. “I do foresee that type of evolution taking place, our listing really takes us to the next phase of that evolution.”
The ‘wild west’ of cannabis investing
There’s a growing list of companies for investors to pick from on the TSX including Aphria, Aurora Cannabis, Canntrust Holdings, Canopy Growth Corporation, MedReleaf and Village Farms International, as well as more than 20 Canadian cannabis companies on the TSXV.
With the volatility of the sector, companies like Toronto-based Horizons ETF and Evolve ETF have both launched Exchange-Traded Funds to help spread investor exposure through a bouquet of marijuana companies.
But Adam Hennick, investment advisor and founder of Hennick Wealth – part of Mackie Research Capital Corporation – says the cannabis market is still the “wild west” in a lot of ways.
“There’s a lot of interest in the sector because of speculative fervour,” says Hennick. “I’m sure there’s some sort of PR that makes it look like (MedMen is) the Apple store of pot and look, that may be the case, it may be the great next thing but are you willing to pay $1.6 billion for it?”
Some have echoed Hennick’s concerns pointing out that the company has yet to post a profit and isn’t listing through the initial public offering route, rather it’s acquiring a pre-existing “shell company.”
Hennick says the speculation reminds him of a mining company: “A mining company drills, they make a discovery, the stock price goes to a place that it may never see again even when it goes to production… and that’s kind of how I feel with marijuana.”
He’s not completely off-base, after all: around 40 (half of Canada’s marijuana firms) started in the resource sector before converting to cannabis through reverse takeovers and spinoffs, according to the Financial Post.
But no one can deny that the entrant of major U.S. players and the growing proliferation of cannabis, marijuana technology companies and cannabis-ancillary services across the stock markets are gaining momentum as legalization for recreational purposes rests on the horizon.
“There’s a lot of us skeptics out there who go ‘it’s garbage’ but a good friend left finance on Bay Street (to create) a global cannabis fund (and) if they work out, they work out massively,” he says. “But for me, I’m rooted in deep value investing… with stuff like (cannabis) you either blow up spectacularly or you win spectacularly, and most of the time blow up.”