What private financing options are available for cannabis businesses in your jurisdiction, and what are their respective advantages and disadvantages?
A medical marijuana treatment center, and any individual or entity that owns 5% or more of the voting shares of such a center, may not acquire direct or indirect ownership of any other medical marijuana treatment center (Florida Statute 381.986(8)(e)(2)). Given that Florida allows only a limited number of these centers (each of which is vertically integrated), entry into the market requires significant capital. Several of the licensed medical marijuana treatment centers in Florida are owned by publicly traded Canadian firms. However, there has also been a significant amount of private financing in the short time that medical marijuana has been legal in Florida. Several of Florida’s licensed medical marijuana treatment centers have announced significant capital raises, and Form Ds have been filed with the U.S. Securities and Exchange Commission by issuers who appear to be related to such centers. In addition, given marijuana’s illegality under the Controlled Substances Act, financing a Florida medical marijuana business could be considered a conspiracy to violate federal law or aiding and abetting a violation of federal law under 18 U.S.C. § 371 and 18 U.S.C. § 2, respectively.
What rules and restrictions govern cannabis businesses’ listing and admission to trading on recognised equity securities exchanges? What are the advantages and disadvantages of public listing?
The New York Stock Exchange, the National Association of Securities Dealers Automated Quotation (NASDAQ), and other domestic exchanges act as self-regulatory organizations (SROs) for their member firms. These SROs are generally responsible for establishing standards of conduct for their members (i.e., companies listed on the exchange) and monitoring their members’ compliance with those standards. American exchange rules prohibit their members from engaging in illegal activity. New York Stock Exch. Listed Company Manual, Rule 303A.10 (2009); NASDAQ Listing Rules, Rule IM 5610 (2009). As a practical matter, this means that companies whose activities are illegal in the jurisdictions in which they operate (i.e., prohibited by U.S. federal law) may not be listed on a U.S. exchange. By contrast, U.S. cannabis firms aiming to tap the public equity markets are typically listed on the Canadian Securities Exchange. Canadian securities regulators have issued guidance that U.S. firms can be listed in Canada despite the fact that their operations are illegal under U.S. law. Generally, the guidance provides that issuers can be listed in Canada provided that the risks associated with their illegal operations in the United States are adequately disclosed. Canadian Securities Administrator, Revised Staff Notice 51-352 (Feb. 8, 2018). Indeed, of the 14 licensed medical marijuana treatment centers operating in Florida, seven are affiliated with companies that trade on Canadian stock exchanges.