The marijuana industry is kicking tail and taking names through the first two months of 2019. The broad-based Horizons Marijuana Life Sciences ETF is up more than 50% year to date, and pot stocks have gathered plenty of momentum following Canada's legalization of recreational weed in mid-October of last year.
Fighting for visibility and validity, uplisting has become a big trend
But perhaps the clearest trend of late has been the push by marijuana companies to uplist from the over-the-counter (OTC) exchange, or go public through an initial public offering (IPO), and move to either of the more reputable U.S. exchanges, the New York Stock Exchange (NYSE) or Nasdaq.
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Uplisting brings with it a host of advantages. For starters, there's the increased visibility of being listed side by side with time-tested businesses. Since the marijuana industry is still attempting to find its footing, having recognized pot stocks listed next to businesses with 50, 75, or perhaps 100 years or more of history is a quick way of establishing the validity of the cannabis business model.
Listing on the NYSE or Nasdaq also means a more efficient means of routing market orders, which can reduce intraday volatility and improve liquidity -- not to mention that not all Wall Street firms are able to initiate coverage on, or buy into, OTC-listed stocks. By making the move to either of these reputable U.S. exchanges, pot stocks are rolling out the red carpet for Wall Street investment and/or coverage.
To date, nine pure-play pot stocks have made the move, including two that chose the IPO route. Here are those nine stocks, listed in the chronological order of when they took the leap.
1. Innovative Industrial Properties
Cannabis-focused real estate investment trust (REIT) Innovative Industrial Properties (IIPR +1.33%) was the very first pot stock to list on a major exchange. The company, which acquires growing and processing facilities in the U.S., then leases these properties out for an extended period of time, had its IPO on the NYSE in December 2016. Today, Innovative Industrial Properties has 12 properties in 10 states, although it's widely expected to continue adding around five properties per year. And since it's a REIT, Innovative Industrial Properties is also the only pure-play marijuana stock to pay a dividend, with its current yield of 2% more or less on par with the broad-based S&P 500.
Image source: Nasdaq.
2. Cronos Group
Among traditional growers, recent Wall Street darling Cronos Group (CRON +5.84%) beat all pot stocks to the uplisting punch. In late February 2018, Cronos became the first marijuana stock to officially uplist from the OTC exchange to the Nasdaq. Without question, the added visibility of being listed on a major exchange has helped, with Cronos landing a $1.8 billion equity investment from tobacco behemoth Altria in early December, which has yet to close. Cronos will probably use its cash windfall to expand production capacity, make complementary acquisitions, broaden its product diversity, and move into overseas markets.
3. Canopy Growth
Canopy Growth (CGC +5.50%), the largest pot stock in the world by market cap, was on track to beat Cronos Group to a reputable U.S. exchange by months. However, at the same time Canopy Growth was looking to make the move, Corona and Modelo beer maker Constellation Brands was making the first of what would be three investments into Canopy, the last of which was a $4 billion equity stake. Canopy Growth made the move to the NYSE in May 2018 and will be utilizing its cash hoard of more than $4.9 billion Canadian -- what's left after a few acquisitions -- to make additional purchases, as well as push into the United States' legal hemp market.
4. Tilray
Aside from Innovative Industrial Properties, the only other company to IPO on a major exchange is Tilray (TLRY +0.00%), which did so on the Nasdaq in mid-July. Tilray is arguably the best known medical cannabis grower in Canada, and it recently forged a global distribution partnership with Novartis' generic-drug subsidiary, Sandoz, for non-combustible cannabis products. Tilray also made noise in December when it and Anheuser-Busch InBev formed a joint venture worth $100 million to research and develop nonalcoholic cannabis-infused beverages. This could be a year of significant expansion for Tilray.
Check out the latest earnings call transcripts for the companies we cover.
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5. Aurora Cannabis
Aurora Cannabis (ACB +4.25%), which is expected to be Canada's largest producer by peak output, uplisted to the NYSE in October. You could say the visibility of being on a major exchange has helped, with the company becoming the most held stock on free-trading online app Robinhood, which is especially popular among millennials. Aurora Cannabis is hoping its superior production will drive down operating costs on a per-gram basis, lead to plenty of lucrative long-term supply deals, and open the door to a number of meaningful brand-name partnerships.
6. Aphria
Less than two weeks after Aurora made the move to the NYSE, Aphria (APHA +0.00%) followed in early November. For about a month, everything was going well for the projected third largest grower by peak annual output. However, in early December, Aphria was hit with allegations of having overpaid for three Latin American properties. Although an internal investigation found the price of these deals to be within reason, the investigation also revealed conflicts of interest with a few insiders. This coincides with the announcement from three board members, including longtime CEO Vic Neufeld, that they would be stepping down. Aphria will spend much of 2019 trying to regain the trust of Wall Street and investors.
7. HEXO
Next up is HEXO (HEXO +0.00%), which moved to the NYSE American board in January. Despite being a relatively under-the-radar Canadian grower, HEXO put itself on the map twice in 2018. First, in April, the company locked in a five-year supply agreement with its home province of Quebec totaling 200,000 kilos. This may work out to around 40% of the company's total production over the coming five-year span. Then, in August, it formed a joint venture with Molson Coors Brewing, known as Truss, to develop cannabis-infused beverages. These beverages should hit dispensary shelves by this coming fall.
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8. Village Farms International
On Feb. 21, Village Farms International moved from the OTC exchange to the Nasdaq. Known primarily as a low-margin vegetable producer, Village Farms formed a joint venture, known as Pure Sunfarms, with Emerald Health Therapeutics in 2017 that'll see a little over 1 million square feet vegetable-growing greenhouses retrofitted for cannabis production. This facility should be fully licensed by Heath Canada in 2019 and is expected to yield north of 75,000 kilograms per year when operating at full capacity in 2020.
9. CannTrust Holdings
Lastly, CannTrust Holdings is the most recent pot stock to uplist, having made the move to the NYSE this past Monday, Feb. 25. CannTrust is unique in that it's the only major grower to focus on hydroponic production -- i.e., growing plants in a nutrient-rich water solvent, rather than soil. Having recently received approval from the town of Pelham in Ontario to expand its Niagara facility an additional 390,000 square feet, CannTrust will be a busy bee increasing its production capacity in its effort to hit 100,000-plus kilos in peak annual output.
