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Is This the Next Big Cannabis IPO?

By David Jagielski - Updated Mar 23, 2020 at 7:44AM

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Bruce Linton isn't staying away from the pot industry.

It may not be an opportune time for companies to go public, but don't tell that to former Canopy Growth (CGC 5.67%) CEO Bruce Linton. Linton is still involved in the cannabis industry through Vireo Health (GDNS.F 3.38%), and he's also looking to make a much bigger splash with the launch of a new company called Collective Growth. Given the success he achieved in making Canopy Growth into an industry leader, investors may want to keep a close watch on his latest business.

The company may be on the Nasdaq very soon

On March 2, Collective Growth filed to list on the Nasdaq exchange. The company is looking to raise $150 million that it plans to offer through 15 million units priced at $10 each. If approved, Collective Growth would trade under the ticker symbol CGROU.

The company is eyeing the hemp and cannabidiol (CBD) markets. U.S. regulators legalized hemp-based CBD products federally through the passing of the farm bill in 2018. Linton's familiar with the opportunities in hemp-based CBD products, as Canopy Growth obtained a license to process and produce hemp in January 2019. It remains the Canadian-based cannabis company's best way to penetrate the U.S. market, where the federal government prohibits cannabis products with tetrahydrocannabinol (THC) levels in excess of 0.3%.

Marijuana leaf showing on a green traffic signal.

Image source: Getty Images.

However, in his newest venture, Linton is looking at more than just hemp-derived CBD products. He told Yahoo Finance, "What we want to take is the whole plant and create a profit from every element of it." While he didn't offer specifics as to what the company was going to do, he did suggest that they may be looking at acquiring some companies, stating that "we have a great management team and we think we can find some really great targets."

Part of that management team includes former Canopy Growth CFO Tim Saunders, and Geoff Whaling, who is a chairman at the National Hemp Association.

Currently, there's no word on when the new stock may begin trading. However, given the sell-offs that have happened in the markets of late due to fears surrounding the coronavirus, it wouldn't be surprising if Linton and his management team decided to hold off on the listing for now.

Could Linton's new company be a good buy for cannabis investors?

The advantage that Linton has is that he knows the cannabis industry well and can likely spot lots of value in this bear market. Where investors may have concerns is that Canopy Growth struggled to stay out of the red and his new company may require deep pockets. Canopy Growth has Constellation Brands as a key investor that can help guide the pot producer. It also didn't hurt that Constellation gave the company an influx of cash with a $4 billion investment.

It's a much different climate in the cannabis industry today, and investors are more concerned about profits and cash flow than they are just about sales growth and potential. That's why Linton's new company may run into challenges raising money. Even focusing on hemp isn't much of a safer strategy anymore. Charlotte's Web (CWBHF -4.07%) is a leader in that segment, and its stock is down around 80% in the past year, which is in line with how the Marijuana Life Sciences ETF has performed during that time.

Without offering investors something new or a compelling strategy, it's hard to see why Collective Growth will be able to avoid the downward path many pot stocks have been on for the past 12 months. Linton was great at sales and did an impressive job of promoting and building up Canopy Growth to the industry giant it's become. But he may find it harder to do amid so much negativity in the cannabis sector as companies struggle to meet investors' expectations.

Another concern investors may have about Linton is his focus. Between Vireo, Collective Growth, and backing Mind Medicine -- a company in neuro-pharmaceuticals, or psychedelics -- Linton's involved in quite a few different businesses, and his attention may not be entirely on this new venture.

Key takeaway for investors

Collective Growth is an up-and-coming company to keep an eye on, but without any distinguishable reason as to why this company will be a better investment than the pot stocks that are already out there, investors may not see a reason to invest in the stock when it becomes available. Investors would be better off waiting to see some tangible results from Collective Growth before considering buying shares of the company. The industry remains very risky, and a new issue could be particularly vulnerable to the market's volatile swings.

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Stocks Mentioned

Canopy Growth Stock Quote
Canopy Growth
$5.03 (5.67%) $0.27
Charlotte's Web Holdings, Inc. Stock Quote
Charlotte's Web Holdings, Inc.
$0.42 (-4.07%) $0.02
Goodness Growth Holdings, Inc. Stock Quote
Goodness Growth Holdings, Inc.
$1.53 (3.38%) $0.05
Constellation Brands, Inc. Stock Quote
Constellation Brands, Inc.
$243.03 (-0.40%) $0.97
Horizons Marijuana Life Sciences Index ETF Stock Quote
Horizons Marijuana Life Sciences Index ETF
$3.19 (1.91%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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