The Canada Stock Exchange (CSE) is an attractive option for mature cannabis companies looking to grow.
With simplified reporting requirements, a progressive approach to the cannabis industry, and no mandatory sponsorship requirements, the barriers to entering this stock exchange are low enough that US cannabis companies should seriously consider taking their operation public across the border.
There are many reasons why you might wish to take your company public.
By raising capital, many companies are able to:
- expand existing operations,
- introduce new products,
- enter into new markets and reach new customers,
- acquire other operators and license holders, and
- invest in R&D
It’s also a good way to pay down debts and boost your cannabis company’s financial health.
However, there are some cons to listing your company publicly. Before you begin the process of getting the IFRS audit and meeting the other requirements for listing, understand these pros and cons for going public on the CSE.
Advantages of Going Public
There are some big advantages to listing your cannabis company on the Canadian Stock Exchange. Here are just a few.
Selling stock allows you to circumvent borrowing from traditional sources and avoid paying debt interest.
The infusion of new money can be used for a variety of purposes that will improve your bottom line, whether its marketing, research and development, opening new retail locations, expanding your cultivation footprint, or applying for new licenses. It also gives you the liquidity to compensate your original investors, stakeholders, founders, partners, and employees.
In addition to the initial infusion of capital you will raise by taking your company public, you also gain the ability to raise funds at a later date.
Once public, you can use the public markets to offer additional equity, normally at a higher valuation than a private company. It may also make it easier for you to borrow money at a more favorable rate than if you were not listed publicly.
Marketing and Awareness
Boost your cannabis company’s profile by going public.
The press and publicity that comes with going public can help you gain awareness with new customers. Plus, by listing in Canada, your cannabis operation has the potential to reach an entirely new client base. Going public can be a highly-publicized event, generating headlines and introducing your unique operation to potential industry partners and new audiences.
Recruit Top Talent
Listing publicly will offer your company new sources of incentives and compensation, which in turn allows you to attract top talent.
This is critical because your team is what makes your company’s products or services successful. The people behind the scenes make the magic happen on stage!
Equity ownership, bonuses, and a performance-based program of stock options can help retain the talent that’s helped you grow to this point. It can also make your company attractive for senior level management or give you negotiating leverage with new vendors. If you’re seeking to build a board of directors, the process of bringing your company public will give you the tools you need to showcase your operation’s stability and profitability.
Acquisitions and Mergers
Finally, if you’re looking to buy or sell your cannabis operation, publicly-traded shares are an enticing prospect to a seller than shares with no ready market.
This gives you an advantage at the negotiating table.
An IPO is a good step toward raising the capital you need to acquire or merge with another cannabis operation; experts have found that an IPO boost a company’s ability to conduct debt-financed acquisitions. Depending on your growth goals, this is worth looking into.
Disadvantages of Going Public
Of course, listing your cannabis company on the CSE does have some downfalls.
None of these should prevent you from considering going public, but it is good to know ahead of time what to expect when entering the CSE.
Scrutiny and Regulatory Oversight
Increased publicity also means increased scrutiny: from your customers, from your shareholders, and from regulators.
By listing on the CSE, you are agreeing to abide by public disclosure rules, meaning you are required to share your business details and some financial information. You will also need to meet additional regulatory and reporting requirements in addition to those mandated by your local, state, and federal rules.
These can demand a lot of time and resources, and may allow competitors to see the inner workings of your cannabis operation.
Public companies are required to seek approval for corporate decisions from a board of directors and/or shareholders, which is something you may already be doing.
A board of directors will weigh in and make decisions on key parts of running your cannabis operation, including:
- Hiring and firing of executives
- Dividend policies
- Options policies
- Executive compensation
- Mergers & acquisitions
As a cannabis operator, you will need to include your board of directors in your licensing process. Careful vetting is important when selecting your management structure.
Cost of Going Public
The process of taking your company to the CSE is long and costly. It requires a significant investment in time, money, and resources.
The IFRS audit is just the first step in what is often a year-long process. Each year, there will be additional, continuous incremental cost burdens.
So reflect and consider the balance of this newfound liquidity by going public versus the costs to gain that benefit. In most cases it makes financial sense to go public, but each cannabis company needs special considerations each time.
Last but not least, going public means you will be selling ownership stakes in your company, thereby losing the complete control you and your business partners currently enjoy.
Selling ownership stakes to the public mean you now answer to a larger group of investors. You will see less return on your own investment due to ownership dilution depending on future valuations.
Interested in joining the CSE? Talk to our experts – we can help you get financially ready to take your company public. Click below to get started.