Editor’s note: Canopy Growth Corp. is the first non-pharmaceutical cannabis company to be listed on a major stock exchange, the Toronto Stock Exchange, in North America. Within the U.S., MassRoots, a cannabis social networking company, has come the closest to being listed on Nasdaq. It was rejected in May and has appealed the decision, backed by The ArcView Group and the National Cannabis Industry Association.
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In the world of U.S.-based securities law, the most prestigious marketplaces to sell a company’s securities are the national stock exchanges: The New York Stock Exchange (NYSE) and Nasdaq. The prestige of being listed on the NYSE or Nasdaq is reflected in higher trading volumes of listed companies’ securities, which often results in those companies’ ability to more easily raise money through sales of their securities. Currently, no cannabis-related company outside of the pharmaceutical industry has successfully listed on either NYSE or Nasdaq.
There are already a number of pharmaceutical companies that have non-cannabis business lines, but that are engaged in cannabis-related research, listed on both national stock exchanges, including Abbott Laboratories (ABT:NYSE), AbbVie Inc. (ABBV: NYSE) and GW Pharmaceuticals (GWPH:Nasdaq). However, whether companies whose business models are solely focused on cannabis would be allowed by the NYSE or Nasdaq to list their stocks for sale is still a relatively open question.
By submitting a listing application to Nasdaq in September 2015, MassRoots, a cannabis-focused social media company, hoped to be the first cannabis industry-focused company listed on a national stock exchange. Prior to MassRoots’ application, no such cannabis company has attempted to list on a national exchange. MassRoots’ 2015 application was denied for failure to meet all of Nasdaq’s listing requirements, including a lack of support from a financial institution such as a broker-dealer or underwriter.
Despite this initial setback, MassRoots was able to secure an underwriting agreement this year with a boutique investment bank, Chardan Capital Markets, that was willing to underwrite a small public offering for the company in connection with its listing on Nasdaq. With the force of Chardan’s capital behind it, MassRoots’ re-applied to be listed on the Nasdaq Capital Market exchange in April.
Nasdaq again rejected the company’s application for listing on May 23. In its denial to the company’s application, Nasdaq indicated that it vows to uphold federal laws, and rejected MassRoots’ listing application on the grounds that the company might aid in the use and dealing of an (federally) illegal substance.
What does this mean for the future of the cannabis industry related to the stock exchange? MassRoots has indicated that it will appeal Nasdaq’s decision, and indeed has a number of avenues by which it can pursue such an appeal. The outcome of MassRoots’ appeal may set a precedent as to whether Nasdaq views companies that do not ‘touch the plant,’ like MassRoots, as more like the already-listed pharmaceutical companies mentioned above. Alternatively, another rejection could mean that Nasdaq continues to view MassRoots more like a cannabis-growing operation that ‘touches the plant’ and is almost certainly violating federal law (which violation would effectively prohibit listing on Nasdaq).
The success of MassRoots’ Nasdaq appeal is arguably the hottest issue to watch in the arena of public cannabis companies right now. It is highly likely that if MassRoots’ application is ultimately approved by Nasdaq, any number of the cannabis industry companies currently quoted on the OTC Markets Group Inc.’s marketplaces will rush to be uplisted as well.
On the other hand, if MassRoots’ appeal is unsuccessful, cannabis companies may have to wait for a significant change in federal law, such as an amendment or repeal of the Controlled Substances Act of 1970, to be able to list on the NYSE or Nasdaq. Such an outcome could significantly limit cannabis companies’ ability to raise large amounts of public capital.
Cautious investors would be well-advised to understand MassRoots’ difficulties in applying for listing on Nasdaq, and the implications of such difficulties, when evaluating an investment in cannabis-industry companies prior to the resolution of MassRoots’ appeal to Nasdaq.
About the Author: Marc J. Adesso is a corporate finance and securities attorney at the AmLaw 100 law firm of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. Previously, Adesso worked on Wall Street, where he counseled a wide array of public companies, including a number of cannabis-adjacent businesses. Currently, he concentrates his practice on securities, corporate finance, hedge fund management and business transactions, including mergers and acquisitions for primarily exchange-listed companies.
_____________________________________________________________________
In the world of U.S.-based securities law, the most prestigious marketplaces to sell a company’s securities are the national stock exchanges: The New York Stock Exchange (NYSE) and Nasdaq. The prestige of being listed on the NYSE or Nasdaq is reflected in higher trading volumes of listed companies’ securities, which often results in those companies’ ability to more easily raise money through sales of their securities. Currently, no cannabis-related company outside of the pharmaceutical industry has successfully listed on either NYSE or Nasdaq.
There are already a number of pharmaceutical companies that have non-cannabis business lines, but that are engaged in cannabis-related research, listed on both national stock exchanges, including Abbott Laboratories (ABT:NYSE), AbbVie Inc. (ABBV: NYSE) and GW Pharmaceuticals (GWPH:Nasdaq). However, whether companies whose business models are solely focused on cannabis would be allowed by the NYSE or Nasdaq to list their stocks for sale is still a relatively open question.
By submitting a listing application to Nasdaq in September 2015, MassRoots, a cannabis-focused social media company, hoped to be the first cannabis industry-focused company listed on a national stock exchange. Prior to MassRoots’ application, no such cannabis company has attempted to list on a national exchange. MassRoots’ 2015 application was denied for failure to meet all of Nasdaq’s listing requirements, including a lack of support from a financial institution such as a broker-dealer or underwriter.
Despite this initial setback, MassRoots was able to secure an underwriting agreement this year with a boutique investment bank, Chardan Capital Markets, that was willing to underwrite a small public offering for the company in connection with its listing on Nasdaq. With the force of Chardan’s capital behind it, MassRoots’ re-applied to be listed on the Nasdaq Capital Market exchange in April.
Nasdaq again rejected the company’s application for listing on May 23. In its denial to the company’s application, Nasdaq indicated that it vows to uphold federal laws, and rejected MassRoots’ listing application on the grounds that the company might aid in the use and dealing of an (federally) illegal substance.
What does this mean for the future of the cannabis industry related to the stock exchange? MassRoots has indicated that it will appeal Nasdaq’s decision, and indeed has a number of avenues by which it can pursue such an appeal. The outcome of MassRoots’ appeal may set a precedent as to whether Nasdaq views companies that do not ‘touch the plant,’ like MassRoots, as more like the already-listed pharmaceutical companies mentioned above. Alternatively, another rejection could mean that Nasdaq continues to view MassRoots more like a cannabis-growing operation that ‘touches the plant’ and is almost certainly violating federal law (which violation would effectively prohibit listing on Nasdaq).
The success of MassRoots’ Nasdaq appeal is arguably the hottest issue to watch in the arena of public cannabis companies right now. It is highly likely that if MassRoots’ application is ultimately approved by Nasdaq, any number of the cannabis industry companies currently quoted on the OTC Markets Group Inc.’s marketplaces will rush to be uplisted as well.
On the other hand, if MassRoots’ appeal is unsuccessful, cannabis companies may have to wait for a significant change in federal law, such as an amendment or repeal of the Controlled Substances Act of 1970, to be able to list on the NYSE or Nasdaq. Such an outcome could significantly limit cannabis companies’ ability to raise large amounts of public capital.
Cautious investors would be well-advised to understand MassRoots’ difficulties in applying for listing on Nasdaq, and the implications of such difficulties, when evaluating an investment in cannabis-industry companies prior to the resolution of MassRoots’ appeal to Nasdaq.
About the Author: Marc J. Adesso is a corporate finance and securities attorney at the AmLaw 100 law firm of Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. Previously, Adesso worked on Wall Street, where he counseled a wide array of public companies, including a number of cannabis-adjacent businesses. Currently, he concentrates his practice on securities, corporate finance, hedge fund management and business transactions, including mergers and acquisitions for primarily exchange-listed companies.
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