The marijuana industry is transforming rapidly before our eyes. What had once been an overlooked and taboo industry that had a very uncertain future is now expected to generate close to $17 billion in legal sales in 2019. Leading the charge for this rapid growth is North America.
To our north, Canada became the first industrialized country to legalize recreational pot in October, while to our south, Mexico gave the green light to medical marijuana in June 2017 (and is strongly considering adult-use legalization this year). Meanwhile, in the U.S., two-thirds of all states have legalized medical cannabis, with 10 of these states also allowing adult consumption.
Eight pot stocks now trade on the NYSE or Nasdaq...
However, legalizations aren't the only means of transformation that we've witnessed. We're also seeing a steady uptick in the number of marijuana stocks uplisting from the over-the-counter (OTC) exchange to reputable U.S. exchanges, such as the New York Stock Exchange (NYSE) or Nasdaq.
For uplisting stocks, there are multiple reasons to make the move. For starters, there's the added validity of having their common stock listed next to other time-tested and often profitable businesses. As noted, the cannabis industry is legal in Canada, and it's going to be around for a long time to come. But moving to the NYSE or Nasdaq further validates the marijuana industry as a legitimate business model that's open to serious investment.
Moving to the NYSE or Nasdaq also rolls out the red carpet for Wall Street, which isn't always allowed to invest in or institute coverage on companies listed on the OTC exchange. By moving to the NYSE or Nasdaq, pot stocks are giving the all-clear to Wall Street firms that they're open for investment and/or coverage. It might also mean even easier access to nondilutive forms of financing.
To add to this point, listing on the NYSE or Nasdaq also means increased visibility and the likelihood of higher average daily trading volume. This should mean more liquidity and less intraday volatility.
To date, more than a half dozen marijuana stocks have made the move, with Innovative Industrial Properties and Tilray going the initial public offering route on their respective exchanges, Cronos Group and Village Farms International uplisting to the Nasdaq, and Canopy Growth, Aurora Cannabis, Aphria, and HEXO choosing the NYSE.
...and it's about to be nine
Well, it's time to make room once again, because this coming Monday, Feb. 25, another top-tier marijuana stock will call the NYSE its new home: CannTrust Holdings (NYSE:CTST). Beginning this coming week, CannTrust will trade under its new symbol "CTST," albeit it will hang onto its ticker symbol of "TRST" in Canada (TRST is already taken in the U.S.).
Ontario-based CannTrust may not find itself in the spotlight nearly as much as, say, Aurora Cannabis or Canopy Growth, but that doesn't mean it won't be a major player in Canada's pot market. According to the company's management team, in excess of 100,000 kilograms of peak annual cannabis production is the goal, which would make CannTrust a borderline top-10 producer by maximum annual yield. Plus, with its focus on hydroponics (growing plants in a nutrient-rich water solvent as opposed to soil) and access to cheap water and electricity, CannTrust has an opportunity to be a low-cost producer.
However, the past couple of months have been a bit of a roller-coaster ride for CannTrust. The initial 450,000-square-foot expansion at its Niagara Perpetual Harvest facility was completed with ease. Meanwhile, the remaining 600,000-square-foot phase 3 expansion had been stuck in limbo due to permitting issues with the town of Pelham. On Jan. 22, 2019, following a lengthy stalemate, CannTrust reached an agreement with Pelham to expand its facility by 390,000 square feet instead of the originally requested 600,000 square feet. However, due to the addition of improved climate-control systems and increased automation, management still expects north of 100,000 kilos in peak annual production, even with 210,000 square feet less in growing space than initially planned.
Check out the latest CannTrust earnings call transcript.
CannTrust is also on the lookout for what it calls "strategic alternatives" to help meet its goal of 100,000-plus kilos of annual output. By uplisting to the NYSE, the company should have little issue obtaining nondilutive financing if it chooses not to raise capital or make acquisitions by selling its own stock. With 210,000 square feet less in growing space than initially anticipated, acquisitions are seeming likelier by the day to reach its production targets.
What'll be particularly intriguing about CannTrust is how well the company responds to its Pelham hiccup. Its Niagara facility and much smaller Vaughan facility both looked to be on track for low-cost hydroponic production. But with the added expenses involved with automation and the possible need to acquire new growing capacity at a presumed premium, low-cost production is no longer a guarantee. In fact, fiscal 2019 profit projections for the company have been more than halved over the last three months, leading to a forward P/E that's now pushing triple digits.
Long story short, uplisting resolves CannTrust's visibility issue, but the company still has plenty to prove to Wall Street and investors.