EXCLUSIVE: Why Canadian Cannabis Companies With US Operations Can Still List On NYSE & NASDAQ?

With cannabis still being illegal on the federal level - classified as a Schedule 1 controlled substance with “no currently accepted medical use” – companies in the sector find it difficult, if not impossible, to list on major U.S. stock exchanges like the New York Stock Exchange (NYSE) and NASDAQ. 

Neither of these stock exchanges accepts companies that sell cannabis in the U.S., even when operating in states where adult-use consumption is now legal. That’s because federal law trumps state law. And, with the feds and the state not being in sync on this important issue, confusion and controversy pop up on a regular basis. Is medical marijuana legal in nursing homes and assisted living facilities? Can sports leagues allow athletes to medicate with cannabis? What about the V.A.?

Why Choose NYSE Or NASDAQ Over OTC? What’s The Difference? 

Some might argue that a public company is a public company, no matter which stock exchange its shares are being traded on. Most companies, however, strive to place their stock on well-established and prestigious markets such as the NYSE or NASDAQ. Of course, these two exchanges are harder to get into because they have special requirements like minimum stock prices and total market capitalization.

Markets like the OTC - over-the-counter market, however, have fewer restrictions. This often makes them the only choice for smaller and less well-known companies.

It should be noted that some OTC stocks can be more volatile, with swings that result in quick losses or gains. In addition, small-capitalization stocks are often less controlled and checked by the Securities and Exchange Commission.

This is why investors tend to feel more secure about investing in companies that trade on the two traditionally prestigious markets.

Worth The Legwork?

To say that the NYSE and NASDAQ are complicated venues for Canadian marijuana companies to break into would be an understatement. Benzinga wanted to learn more, so we reached out to Sebastien St-Louis, president, CEO and director of Canadian cannabis company HEXO Corp HEXO. This cannabis producer is based in Gatineau, Quebec, and focuses on the recreational cannabis scene. 

Last year, Hexo expanded its partnership with Molson Coors Beverage Company TAP and formed a joint venture to launch non-alcohol hemp-derived CBD beverages in Colorado.

Previously, the two companies teamed up and created another joint venture to produce a non-alcoholic cannabis-infused beverage for the Canadian market called Truss Beverages.

But Hexo’s focus on the U.S. market doesn’t end there, especially now that cannabis legalization can be felt in the air. Thus, the cannabis giant recently finalized the acquisition of a Fort Collins, Colorado-based production facility – its first in the U.S.

“We're very excited to have zoning from the municipality for all cannabinoids, which means that once we have federal legalization we already have the municipal requirements for eventual THC production,” St-Louis told Benzinga.

This way, the company has secured more distributorships in Fort Collins, incorporated its ‘Powered by Hexo’ solutions and is preparing the ground for possible federal legalization.

Regarding the recent Cannabis Administration & Opportunity Act, introduced by Senate Majority Leader Chuck Schumer (D-N.Y.) and fellow Sens. Cory Booker (D-N.J.) and Ron Wyden (D-Ore), St-Louis called the draft bill “certainly ambitious.”

While Hexo’s CEO is encouraged by the language of legalization in the bill, he believes that due to the complexity of the process it could be another three years before the process is complete. Not keen to wait that long, St-Louis said, “we are actively pursuing a structure that would allow us to enter the market in a legal fashion faster than the full-blown legalization.”

After all, some 80% of U.S. adults already have access to legal cannabis on a state-by-state basis, St-Louis noted.

Legal Activities And Hyper Compliance Are The Key

To make all things work, have U.S. operations and be listed on the NASDAQ, a company must be “hyper compliant.”

“Well, we're doing it legally, and that’s not easy, but we’re only dealing in legal substances and hemp. So, everything at Fort Collins is actually sourced from hemp-derived CBD. So, we’re not touching the THC molecule until full legalization,” St-Louis explained.

And that seems to be the key. Sticking to hemp until U.S. laws change.

Being compliant with all government regulations and having a super technical approach have enabled Hexo to be a legal entity to operate in the U.S. and still be listed on a major stock exchange.

High Goals In $10B Worth Canadian Market, Focus On U.S.

The company is dead serious about its future and expansion strategy, having made several acquisitions, with the most recently announced being the purchase of Canadian cannabis producer Redecan for $925 million in cash and stock. 

In a few years, the Canadian market could be worth up to $10 billion, and St-Louis believes it will be dominated by three top players. He is aiming for Hexo to be one of them, and that’s why the company is making important consolidation moves.

“At the moment, on a consolidated basis, we have more market share than the next leading incumbent,” St-Louis said pointing out that Hexo already sells “more dollars of cannabis products in Canada than Tilray (NASDAQ: TLRY).”

Trying to grow more value for its shareholders, the company is aiming to reach a 30% share in Canada, which St-Louis believes is within reach. At the moment, Hexo’s share in Canada stands at around 17%.

Pushing to reach that goal in the next few years, the company’s merger and acquisition strategy is now looking towards the U.S. 

While the company has all the licenses needed to export to Europe, St-Louis explained to Benzinga that its current strategy around Europe is to closely monitor and be ready for the adult-use market.

“We're not aggressively pursuing the medical market in Europe today. We think that market is overly saturated and, much like we did in Canada, we're going to focus on the recreational use when it opens up.”

Photo: Courtesy Of Sebastien St-Louis