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Schedule 1 of the Controlled Substance Act, 1970 stands firmly between the US government and the Marijuana-related Businesses (MRBs). The government can nullify the law but have parked it for later. Despite the odds, many MRBs are listed in America. Looking at their websites it appears that almost all of them are either into cannabis pharmaceuticals or the technology business but barely into marijuana distribution.
A further analysis of the stock prices of the listed MRBs reveal that the industry is not in good shape. Most of their shares have shown fluctuating trends and are valued in single digits now. A very few of them fared well last year in the market but have dramatically fallen to below ten dollars a share now, which is disproportionate to the growth forecasts of the marijuana industry’s $41 billion annual sales by 2026 in the US.
As per an opinion published on the Securities Exchange Commission (SEC’s) website, money laundering laws have a significant impact on the industry and its stakeholders. However, such impacts are mitigated once the entity is publicly listed. Such listing itself involves a lot of scrutiny before being listed; therefore, investments made in the shares of MRBs may not attract federal money laundering allegations. However, the federal illegality still haunts the banking system. Behemoth Bank-holding companies (BHCs) are still reluctant to welcome marijuana money in their system. Recently a few BHCs’ investment subsidiaries have asked their clients not to buy new cannabis-based securities and to even liquidate their previous holdings in such businesses.
Ultimately two factors are primarily needed to be considered before investing in MRBs stocks: (i) Whether your bank allows it?; (ii) Whether your wisdom allows you to invest in these highly volatile stocks? If the answer is ‘no’ to the first and affirmative to the second, the best bet can be over-the-counter MRBs stocks. They are highly speculative and considering the risk, necessary due diligence must be conducted beforehand.
The neighbouring Canada has already legalised its recreational use back in 2018; therefore, the US MRBs who wish to get themselves publicly listed consider Canada to be the alternative. The MRBs, rather than seeking the traditional IPO listing, resort to reverse takeover (RTO) of the publicly listed company. It involves buying up the equity stocks of a publicly listed entity by a private company upto a limit where it controls a majority stake. Thereafter, the private company becomes a subsidiary of the public company and gets listed on the stock exchange.
A Special Purpose Acquisition Company (SPAC) merger (or de-SPAC) is the recently used vehicle of taking a company public. SPAC is basically a blank company with no business, incorporated and listed solely for acquiring another company. SPACs have not gained wider acceptance amongst stock exchanges but a few recognise them. Reports suggest Canadian SPACs were successful in finalising acquisition of the US based marijuana company in 2019.
The US is the biggest financial market. To list on US stock exchanges, MRBs first list themselves in Canada and then head back to their home market. Regulation S of the Securities Exchange Act 1933, offers Canadian listed companies a safe harbour to unrestricted “free trading” securities in off-shore transactions outside the United States without SEC registration and reporting obligations”. However, such MRBs must undertake not to involve in distribution of marijuana in the US.
Ultimately the market is restricted (or closed) if you decide to deal into distribution of marijuana for recreational purposes. Over-the-counter purchases, and private investors and loans are still an option in MRBs’ checklists, which demonstrates higher risk-taking appetite the businesses have. The proposed legislations like SAFE Banking Act are yet to see their enactment but in the meanwhile, MRBs can run their businesses facing all the odds and lobby to see the dawn.
The government wishes to see a dawn where the menace of drugs is reduced to none as billions of dollars have gone into stopping crime. Recently, their approach has shifted to mitigate the consequences. Supervised Drug-Injection sites are being established now, one such site is in New York City. Here people can bring their intoxicating drugs, get them tested and injected under the supervision of trained staff, who if needed can administer a counter drug to control overdose. The move is being criticised by some and appreciated by others; but for MRBs it may be a ray of hope. You never know!
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