If you want to invest in a multistate cannabis operator, the only way you can do so is by going outside of the major exchanges, where listing rules allow them to trade. Marijuana remains illegal at the federal level in the U.S., which prevents companies like Curaleaf Holdings (CURLF 1.11%) and Trulieve Cannabis (TCNNF 1.31%) from listing on either the New York Stock Exchange (NYSE) or Nasdaq (NASDAQ). Instead, those companies have to resort to over-the-counter (OTC) exchanges and other less popular markets to raise money. And that can limit the number of investors they reach.
But U.S.-based marijuana companies are hopeful that the day may come soon when they are able to up-list to a major exchange, especially with possible reform coming at the federal level now that a more pot-friendly government is in place. And one cannabis executive believes that day may arrive sooner rather than later.
Here's when it may happen
In a recent interview with Bloomberg, Curaleaf executive chairman Boris Jordan said the company is often in talks with the Canadian exchanges, and that he is optimistic a change is coming soon across the border. "Something's gonna happen this year for U.S. cannabis players in terms of uplisting," he said. However, he also acknowledged it could take until next year before the necessary legislation passes.
Currently, Curaleaf trades both over the counter and on the Canadian Securities Exchange, which has looser rules than the Toronto Stock Exchange (TSX). The top Canadian exchange previously warned companies with positions in the U.S. pot market that their shares could be delisted.
Jordan isn't betting on full-blown cannabis legalization, which may be unlikely under a Biden administration that seems receptive to decriminalizing pot, but not necessarily to full legalization. But the Curaleaf executive said he anticipates there will be a safe harbor clause that will make it possible for major exchanges to permit pot stocks to trade them without running afoul of the federal regulations.
Another important piece of legislation may already be on the way
This is similar to the reform that the cannabis industry has been seeking on banking. Currently, cannabis companies can find it difficult to obtain banking services. Many financial institutions are forced to steer clear of the industry due to the prohibition of marijuana and the problems they could run into for doing business with that sector. The Secure and Fair Enforcement (SAFE) Banking Act would help alleviate those concerns and allow banks to do business with cannabis companies without the fear of repercussions from the federal government. But after passing the House in 2019, the bill failed to advance.
However, last week, it was reintroduced into the House. Now that Democrats control the Senate, there is some optimism that the bill may finally pass. The SAFE Banking Act won't legalize or decriminalize marijuana, but it would be a significant step forward for the industry. It can help U.S. operators raise money while also minimizing their need to hold cash. The act could also put marijuana reform back in the spotlight, potentially paving the way for even more changes.
Why these developments could send pot stocks soaring
Any type of marijuana reform that grants additional rights and protections for cannabis companies could quickly get investors bullish on the industry. And if a stock like Curaleaf can trade on the NYSE or NASDAQ, that will help put it on the radar with more investors and potentially lead to a rebalancing where Canadian pot stocks are swapped out in exchange for U.S.-based ones.
Canopy Growth (CGC -5.85%), through its tentative deal to acquire Acreage Holdings (which it cannot close until marijuana is federally legalized), is currently the closest thing to investing in a U.S. marijuana producer on a major exchange. That may explain why the stock trades at an obscene 30-plus times its sales while the typical stock in the Horizons Marijuana Life Sciences ETF averages a multiple of just five. Curaleaf, which reported its year-end results on March 9, generated $626.6 million in revenue during 2020 (the Canadian pot giant has generated roughly $405 million over its past four quarters). With a market cap of $11.2 billion, it trades at just 14 times its sales.
Although Curaleaf has access to the much bigger market, investors are paying a much larger premium for the Canadian-based pot stock. An uplisting for Curaleaf could change that and catapult the stock into the mainstream. Curaleaf's stock currently has a 30-day average volume of 1.5 million while Canopy Growth's stock trades five times as often:
For investors, now could be a great time to load up on a top multi-state operator like Curaleaf before the pot stock gets even more popular.