Federal law makes the possession and sale of marijuana illegal throughout the United States. As we’ve long known, this federal policy keeps American consumers from accessing a product they want. What’s now becoming clear is that the illegality of pot is keeping American companies from accessing something they want as well: capital. Arguably making matters worse, the federal prohibition on marijuana is giving foreign players – particularly those from Canada – a leg up in the emerging cannabis industry.
In March, a Toronto-based company called the Cronos Group began trading on the Nasdaq exchange. As a grower and distributor of medical marijuana in Canada, Australia, Germany, and Israel, Cronos became the first company that deals directly with the cannabis plant to get listed on a U.S. stock exchange. The pot industry is poised to break another barrier imminently, as the Canadian Canopy Growth Corp. has declared its intent to list on the New York Stock Exchange. Canopy Growth, which cheekily trades on the Toronto Stock Exchange under the ticker symbol WEED, would become the first pot producer to be listed on the NYSE.
The fact that these ground breakers are Canadian is not coincidental. While the U.S. is a major engine of growth for the cannabis market, which is expected to reach $57 billion by the year 2027, U.S.-based cannabis companies cannot attract investment capital by going public. Understandably, stock exchanges have rules against listing companies whose very business involves breaking the law of the country in which they operate. That leaves U.S.-based companies shut out of the NYSE and Nasdaq, while Canadian companies – whose activities don’t violate federal law in that country – face no such barrier to listing.
Not all marijuana-related businesses in the U.S. are being kept from the public markets – just “plant-touching” companies whose operations involve possessing and distributing pot. GrowGeneration, a greenhouse supply store for marijuana growers, just raised $10 million in public funding. That’s the company’s largest capital raise to date, according to its Form D.
Also, there could be a hidden upside to keeping U.S.-based pot companies from the public listings: the prohibition could be saving the companies and their would-be investors from experiencing the high and crash of a bubble in pot stocks. That’s a real worry in Canada, where public investment in pot stocks has them growing like a (pardon the pun) weed. According to MarketWatch, the marijuana industry “has a current stock-market value of around C$30 billion – about half the market cap of the country’s gold mining industry.”
Even so, that is probably little solace to U.S. companies held out of the public markets while foreign counterparts are invited in. The seeming unfairness of the situation is exacerbated by the fact that at least a dozen U.S. states have legalized marijuana to some extent. The disparate treatment of U.S. and Canadian companies could be something to seize on for the legalization campaign’s newest proponent, John Boehner. In 2011, the former speaker of the House said that he was “unalterably opposed” to legalization. As it turns out, his opposition was quite alterable. Boehner claims that his desire to support research, assist veterans, and curb the opioid epidemic did the trick. (He didn’t mention anything about a check from Acreage Holdings, where he’s now on the board of advisors.)
He may want to add a desire to give domestic businesses equal access to the capital markets as another reason for his change of heart. Because current U.S. policy is not putting America First.