Cannabis companies are experiencing extreme growth and with the latest IPO boom, now is the time to go public!
In this webinar, our Audit Partner, Marko Glisic will walk you through the steps to prepare for a successful public listing of your cannabis company in Canada.
He will cover:
- Important Timelines
- Partners and Service Providers
- Auditing Standards
- How Much Money You Can Raise, and much more!
If you are considering taking your company public in Canada over the next 12-36 months, then please reach out to us and let’s start the process!
Full Webinar Transcript
Hey everybody, it’s Marko Glisic. I’m the audit partner with GreenGrowth CPAs. Thank you for joining this webinar. For today’s topic, we’ll cover taking your cannabis company public in Canada. This has been a very, very hot topic over the past year. So we figure we put together a good webinar for you guys.
Before we get started, a little bit about us, we’ve started off as a tax shop. So we’ve done over 1,000 annual tax returns for cannabis operators across all verticals. We’re talking dispensary distribution, cultivation, manufacturing, delivery and testing. We’ve served over 350 plus cannabis clients. We’re spread across 11 states. You name it, wherever the cannabis is legal, we’re probably there. Over the past couple of years, we started focusing more on a attest work also. So we’ve done over 12 plus audit related and valuation projects. We are a young firm, but a very proud one. We really are a true boutique firm. All of our professionals are seasoned, big four professionals. So think about Deloitte, Price Waterhouse, Ernst and Young, KPMG. We bring guys who have strong experience when it comes to attest tax CPA work. And then we combine that with a strong cannabis work to really deliver you a true boutique experience. And we really have a thorough and deep understanding of tax compliance and assurance related requirements for the cannabis industry.
And before we get started, a little disclaimer. So the information contained in this webinar presentation is meant for guidance purposes only and it’s not professional legal or tax advice. Further it does not give any personalized legal tax investment or any business advice in general.
The agenda for today, I mean we’re really going to cover a few things, what are the different exchanges in Canada? What are the steps for going public in Canada. This one we get asked often, you know, how long does it take to go public? What are the different service providers and partners you will need to work with and who will support you in your journey? How many years of financial statements need to get filed and audited? What are the auditing standards your auditors will have to follow in Canada. What are the different financial statements, standards that you will have to follow in Canada when preparing your financials. Really where to look up info on different cannabis companies that are already public. If you want to benchmark your financials or really look at their filing and get a better understanding of the process. And lastly, how much money can be raised.
So we’re going to start off with different exchanges. In Canada, there’s really three main exchanges. Toronto Stock Exchange is really the biggest one in Canada. They will be equivalent to New York Stock Exchange in the United States. This is really where you have, you know, well established companies that have been in business and they have strong revenue performance, have large amount of assets. The second one be TSXV, which is a Toronto’s ventures exchange. This is where really a lot of starter companies generally go public and think about companies that have only been in business for you know, a year or a couple of years and they really have as much in revenues or in assets and it’s really a way for Toronto stock change, which has been more a traditional exchange to attract some of these smaller companies. And the last one is Canadian stock exchange and this one is very similar to TSXV so again, you know works with a lot of startup companies. It’s a newer exchange. Generally, application process is easier and more straight forward. And this is the stock exchange where really, most cannabis companies go public and that’s really the one we’re going to focus on here because it’s really the most relevant.
So let’s go cover some steps for taking your cannabis company public. There’s really two ways to go about it. One is doing an RTO, which is the a reverse takeover or an IPO, which is initial public offering. And we’re going to cover more RTO because that’s really been the preferred method for most cannabis companies to do it. IPO is more a traditional way. You tend to see it a lot in the United States where you tend to see it on Toronto Stock Exchange in Canada, but that’s more traditional way where by the legal entity owned right no, that’s the entity that goes public, you issue additional shares, that you offer out to the public and then the general public invests in your company and really through that initial step of listing yourself, you’re also raising that capital and that’s really the reason why it’s called the initial public offering.
RTO is a little bit different. It’s a two-step process, right? So you are going to identify a company that’s already publicly traded in Canada. Then very often this is going to be a shell company, right? It could be a company that has been public for some time, but they’ve run out of funds. They’ve maintained their listing, but they really aren’t doing much. And a lot of cases, some of these companies won’t be even actively traded. There’s going to be one trade a quarter, one trade a year, right? And then what you’re going to do is you’re going to acquire that company and by effectively acquiring that company you become public and now that you’re public you can leverage that position to raise funding.
And that funding can be raised in a really couple of ways. One is you do what’s called a secondary offering whereby you issue those additional shares to the retail investor and the general public or two, you can still continue doing private placements, right? Where you raise funding outside of the exchange privately. But you know what, now you have your valuation pretty firmly established by the marketplace. And now with the multiples in Canada being very attractive, right? I mean, some of these companies are trading at, you know, anywhere from five to a 20 to 50 multiples of revenues, which are big, big numbers, right? It can be a good way to give you a leverage in negotiations when dealing with private investors.
As part of that process it will generally take about 13 weeks. Very important to find a good shell company and do your due diligence. You know, I can’t stress how important that part is. You know, you’re doing an acquisition of a legal entity, which means really all the assets and liabilities are following you, right? So if this company has any environmental liability or think any legal liabilities, those kinds of now start falling onto you. So it’s very important to do that due diligence and make sure they’re in good standing. The filings are good with the exchanges and on that legal liability side, the exposures minimal. And then as part of that process, you’re also going to file the listing statement, right? The RTO circular prospectus, disclosure documents, financial statements. Generally a shareholder meeting needs to be held at the target where they’re going to approve the takeover. And once you go through all those steps, you become public through that acquisition. And another thing they usually comes along with some of these transactions, really, three things will happen, right?
Number one, the acquisition occurs right? Whereby you have acquired the shell company. Number two, the listing statement is filed whereby now the general public can really understand your company, right? And really know what your company’s about, what are your financial highlights, what is Your Business Plan? So they can start actively trading your company. And then lastly, very often you’ll also going to do a private placement at this time, which will also establish your valuation and help you raise additional capital. So that’s generally the way we’ve seen these things happen. all three simultaneously at one time.
A question we very often get is, hey, how long does it take to go public? You know what, any really depends, you know, a general estimate it time for an RTO is anywhere from three to six months. Again, sometimes we’ve seen them taking longer and it really comes down to how well you’re prepared right here are your financial statements organized? You know, do you have a seasoned team that understands IFRS? You know, are you working with the right expert in this space who can educate you along the process, really help you in your journey and move you forward. With IPOs, I mean, those can easily even take up to a year, but again, if you prepare ahead of time, you know you have all these things, all your ducks in a row, it can be a lot quicker. One good tip is to make sure you budget extra time to find that Shell company perform due diligence when doing RTOs. You don’t want to rush that part. Again, as I said, you don’t want any unwanted exposure and you want to make sure you’re acquiring the right shell company there.
And if going public is something you’re thinking right now and you’re thinking, Hey, I want to go public in the next, you know, three, six, 10 12 months, you know, or even 24 months, make sure you reach out to us right now because you know, as I said, it’s a very thorough process and it does take a lot of time and it does take a lot of planning. And so you don’t want to be doing this last minute since you don’t want to have really a failed RTO or failed IPO. So make sure you reach out to us right now.
So next, let’s cover different service providers and partners that are going to support you in your journey. So there’s a number of them you’ll work with when it comes to an IPO or an RTO. It’s going to be lawyers, auditors and investment bankers.
As far as lawyers, you’ll be working with security lawyers. So these are the guys who really understand the security law in Canada, right? The rules of the exchanges, the different security laws in various jurisdictions in Canada, whether it’s British Columbia or a different jurisdiction. You know in a lot of ways they also serve as quarterbacks for entire process. There’ll be a connection between you, the auditors, the investment bankers in the exchange. They’re going to be that main line into the exchange. If you have any questions about the process, they’re going to really help educate you with the different types of documents and filings you’ll have to do with the exchange. They’re going to drive the timeline in a lot of ways and they’re going to help you fill out a lot of that documentation when it comes to the listing statement. And very often they’ll have put a lot of due diligence work whereby you know ibankers are performing due diligence on you or if you are performing due diligence on your shell company.
One thing I would say here when it comes to filling out that listing statement again, you know a lot of different service providers will help with different parts. But one thing I’ll say, make sure you’re still taking big ownership of that process because ultimately that listing statement is about you. It’s about your company, right? Your financial highlights, your business plan, you know, what makes your brand and your company so great, right? And why should a retail investor or institutional investor really invest in your company? So that’s one thing I’d say, you know, makes you take your ownership over that part and really reviewed in a lot of detail.
The second group you will be working with is the auditors. Auditors, really the main function you could say is, hey, you know, they’re there to audit your financials, which are going to be filed with the exchange. They provide that additional trust and support the trust that the public will have in you since now, hey, your financial statements have been audited by third party. But more than that, what I would say is what you want to look for in your auditor is really an advisor and a partner who can support you in your journey. So somebody who really understands the auditing standards in Canada and who really understands the accounting standards that are followed in Canada, who can help educate you with, hey, this is how revenue recognition standard works in Canada. This is how business combination standard works in Canada, right? They can really help educate you in guide you and make sure you’re properly benchmarking your financial statements. You’re not creating any unnecessary exposure to yourself and you’re really not misrepresenting anything to the public. So you know, more than anything, I think you’re really looking for the right advisor for that role.
And the last group you’ll be working with are the investment bankers, right? And so the investment bankers will help market your business. As I mentioned before, when an RTO, you see three things come together. On one hand we said you’re going to be filing that listing statement. On the other hand, you’ll be executing the acquisition of the shell company and the third item is going to be the private placement whereby right before going public, you are raising funding from various private parties. A lot of accredited investors, you know, whether it’s, you know, the hedge funds, pension funds, you name it, and raising that funding, that really, you know, additionally funds your cannabis company, establishes your valuation. So all these three things come together. That’s really where investment bankers come into play, right? So they’re going to help you market your business, set up their road shows for you, help you market your company to the right parties, connect you with those parties, establish a valuation. In a lot of cases they’ll help you with finding the shell company. And down the road they’re going to continue supporting your business. You know, anytime you want to do a secondary offering, right? So now you’re public, you want to issue additional shares to raise additional capital for the new projects you have. The investment bankers are going to be your go-to guys. They’re going to help with that process, right? So they’re going to underwrite your shares, right, purchase your shares from you and then market them to the general public, whether that’s a retail investor or an institutional investor. Also, you know if down the road you want to acquire a business or you want to sell your business, again they are going to be there to support you and assist you.
The next item I want to cover are the financial statements. So generally you’re required to file three years of financial statements, management, discussion and analysis and performance. Some of the information that’s included in there is net sales/total revenues and net income and loss, total assets and liabilities, cash dividends, quarterly info for each of the eight most recently completed quarters ending at the end of the most recent fiscal year. In case you’re using foreign GAAP, meaning GAAP that’s not followed in Canada. You have to provide a reconciliation between the numbers in foreign GAAP and the accounting standards acceptable in Canada. And then the last time you tend to see included in there is the liquidity. So this is the information, you know, your cash position, operating cash flows, investing, financing, various debt instruments and most of the other requirements are outlined in CSE form2a. It’s a really good resource and I would highly advise and suggest you all visited and look at it. It has a lot of great information and really bullet points item by item. Hey these are all the different items I need for my financials.
Again, one thing I would caution here, you will be following different accounting standards in Canada than you are in the United States or if you’re in a different country. And then the standards really there that come into play are the IFRS (International Financial Reporting Standards). So make sure you budget time for it ahead. Really go through your balance sheet and income statement and understand what are different account balances that your business has. What are the accounting positions you’re taking right now with respect to you know, revenue recognition, leases, various financial instruments that you have, the various steps of liabilities, warrants, stock options, taxes, right? And then really understand what’s the impact of those items when it comes to IFRS. And find the trusted advisor, find the auditor who can assist you with that process. Really educate you and help you understand what your requirements are there.
Next item I want to cover really briefly auditing standards in Canada. So the generally accepted auditing standards in Canada are the Canadian auditing standards. so these are the standards that your auditor would be following. Also the auditor needs to be registered with Canadian Public Accounting Board (CPAB). Exchanges will in certain cases except foreign standards, but again there’s some additional steps and processes you got to go through with those. So one thing we always advise issuers, just have your auditor performs standard audits in accordance with Canadian auditing standards.
Again, just briefly touch upon financial statements, standards in Canada. I previously mentioned that you will be following international financial reporting standards. Again, as I mentioned, very important to understand the differences between where you are right now, which I’m guessing and a lot of cases it’s going to be US GAAP versus IFRS. Couple of things to keep in mind. the new standards, the big talk, right? With international financial reporting standards, right. We have IFRS 15 which is the revenue recognition standard became effective January 1, 2018. IFRS 9 which is financial instruments standard, which became also effective January 1, 2018. And the last item is IFRS 16 which is the new leasing standard, which is effective 2019. I think from my experience, what I’ve seen with a lot of cannabis companies, IFRS 16 is the one that’s probably going to have the most impact because now effectively a lot of your leases that you have maybe now it’s operating leases will come onto your balance sheet. So it is going to change the geography in your financials quite a bit. So that’s definitely the one you want to definitely take your time and prepare for and really talk to the experts to understand how to tackle it.
And some of the stuff I want to cover here is where to look up the public company info on CSE. And I think this is very important as you go through the process, sometimes some of the best examples are the ones where people have already done their filing. If you want to really take your financial statements and benchmark him against your competitors, you really want to look at the other public companies. So good place to look up that even is www.sedar.com. This is the database where all public issuers across all exchanges in Canada, rights with Toronto TSXV, CSE are publishing their information. So you’re going to find there anything listing statements to annual financials, quarterly financials or any other type of filing that these companies are required to do with the exchanges. You can look up, hey, let me see financials of this company. You know, how do they go about recording their biological assets? You know, how do they go about recording their leases? It’s a really, really helpful resource. And there right now about 113 US and Canadian cannabis companies listed on CSE. So there’s plenty of examples on there. CSE publishes that listing. We’re going to include the link somewhere within the email, or we’re going to do it somewhere within the webinar about we’ll provide you with that info so you can go in and look it up.
Question we really get often is, hey, how much money can be raised? One thing I’d say here, probably the right question is, hey, how much money do I really need? So really understand, hey, what is my business plan? You know, what am I planning to use this money for? And once you figure that out, then you know how much money you will need. Then from there, as far as how much money can be raised, we’ve seen, you know, companies raise 2 billion, you’ve seen companies raise 10 million, you’ve seen companies, raise hundred million. You know, CSE has been truly a wonderful place for companies to access their capital. And so with what we’ve seen is a lot of the business plans you might have and the great ideas and visions. This can be a really good place for you to raise them money and support your business.
Couple of key takeaways as we close out the Webinar, I think all the US companies should explore the RTO option on the Canadian stock exchange. I really do think it’s a great opportunity for a lot of companies. It has opened up a lot of doors to financing and expanding your business. You know, fortunately with the banking situation in the US, access to capital has been really hard on the companies. You know a lot of the traditional debt instruments that most companies would outside of cannabis readily take on. You know, whether it’s, you know, revolving credit, term loans and whatnot have unfortunately been not possible for cannabis companies. So now that public option in Canada has been truly amazing.
And one thing also when you go through this process, be ready to disclose a lot, and I’ll repeat that again, a lot of financial information. That’s going to be even from more aggregated financial information like revenues, assets and what not, to even some more detailed stuff, right? the stuff you included in your MD&A more about the metrics of your business and whatnot, the different segments within your business.
Lastly, again, I mean just one thing I want to cover is that again, it is a great opportunity. Some of the US companies have raised, you know, millions and millions on the exchange and it has been really a great avenue for them. But lastly, I’ll just say it, you know, make sure you’re working with the right trusted advisors who are going to support you, assist you and educate you along that process. And you know, we’ve been in this business really in the CPA business for decades of combined experience and then in cannabis business for a couple of years. But again, you know, we bring a seasoned team of professionals who have strong CPA experience, IPO, RTO experience, and a strong understanding of the cannabis industry. And we’d be more than happy to support you along in that journey.
If you guys want to get in touch with us and find out more about how to go public in Canada, you can contact us at our website, https://GreenGrowthCPAs.com or give us a direct call at (800) 674-9050. Thank you very much for attending this webinar.
And again, if you have any additional questions, you know, feel free to get in touch with us. If you’re a financial services company and you want to offer your clients a way to go public and raise that additional finding, please reach out to us. Again, we’re very familiar with this process and would be more than happy to support you and vice versa, have you support our clients.