US Cannabis Companies Call on Canada to Cultivate Capital

Canna-Hub, a Sacramento, California-based cannabis real estate and property management company, has several large developments in early stages around California that are 80-plus percent occupied with more projects planned.

The company doesn’t need additional resources like marketing or a bigger sales force to fill up its cannabis-centric commercial properties, for which executives report receiving a dozen or more calls daily from interested prospective tenants.

But it does need more money to continue developing properties to meet growing demand, and one of the best ways to secure large amounts of capital is by going public.

That’s why Canna-Hub’s owners are pursuing a public offering in Canada, a country where the process is reportedly shorter, easier and carries less risk for investors.

“It would be almost silly for us not to consider an IPO in Canada,” said Tim McGraw, the company’s CEO and founder.

News emerges almost daily of cannabis companies going public through stock listings on the Canadian Securities Exchange, the Toronto Stock Exchange (TSX) and TSX Venture.

While the US Securities and Exchange Commission has offered no official policy on regulating cannabis companies wishing to get listed on the New York Stock Exchange (NYSE) or the Nasdaq, the SEC has been thoroughly scrutinizing marijuana-related publicly traded companies.

The regulator offered nearly 200 comments on public filings from cannabis businesses in public filings in 2017, records show. Many of those SEC comments were related to disclosures, namely requiring companies to disclose the risks of dealing with marijuana because of how it’s viewed by the federal government.

Regulatory hurdles are not the only reason McGraw, who told that he expects to make an announcement on an official IPO within the next two or three months, isn’t taking his company public in the US.

Canada is about to make recreational cannabis legal across the nation, whereas in the US it’s still illegal in the eyes of the federal government, creating an uncertain regulatory environment in which investors shy away from cannabis companies.

“Technically we could go public in the US, but we would be operating in the grey because of our connection to cannabis,” he said.

There’s also far less cost and time to file to go public and pass scrutiny from regulators than in the US, according to him.

“As of now, the path of least resistance to substantial capital in the markets is through Canada,” he said.

Cutting through red tape and the costs is why Prime Harvest, a California-based, vertically integrated cannabis company with cultivation, manufacturing and retail licenses throughout the state, is steering clear of a public offering in the US.

“Access to capital, even for American companies, is much easier though Canada,” said Chand Jagpal, Prime Harvest’s chief financial officer. “If you approach an American brokerage firm or auditor, they’re still uneasy about the rules.”

Prime Harvest is looking to cut all the red tape it can.

The company is undergoing a reverse merger, or reverse IPO, in which a private company acquires a public company to bypass the complicated process of going public.

A deal that was announced earlier this year with ME Resource Corp., traded in Canada under the symbol MEC, is expected to be complete this week, and not long after the company will be trading under a new name and symbol: Prime Harvest Cannabis Corp.

This will significantly reduce the time the process takes – far shorter than the six months or so Jagpal said it will take in Canada. And far shorter still than the length of time going public in the US would take.

“Over the next two weeks to a month, we’ll be listed and trading,” Jagpal said. “In the states, it could take years.”

He added, “An RPO is not the only way, but it’s the easiest way.”

And because a stock is listed in Canada, that doesn’t keep US investors out. It can be traded over-the-counter by US investors interested in the cannabis market, according to Jagpal.

“It’s not really prudent to have our investors come through (the US) market,” he said.

Beyond saving time and money stands perhaps the most important enticement for companies to go public in Canada.

“They are salivating for cannabis deals up there,” McGraw said.

He feels good about what Canna-Hub is offering investors. The company supplies more than just space for cannabis companies. It connects its tenants with numerous value-added offerings, such as hydroponics supplies, security services and even banking.

“There’s a lot of ancillary services that we provide our tenants,” he said.

Canna-Hub will be viewed by traders similar to a real estate investment trust (REIT), offering them a diversified asset with valuations that based on real estate and hard assets – as well as the benefit of enabling them to put their money into a growing cannabis market with a lot of upsides.

Those are all benefits McGraw believes will prove to be attractive to investors in Canada.

“The appetites, especially for investments like ours, up in Canada is significant,” he said.

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