Last month, The Supreme Cannabis (TSXV: FIRE) (OTCQX: SPRWF) announced a bought deal offering which closed on Friday for proceeds of $100 million. The 6.0% senior unsecured convertible debentures mean dilution to some, growth to others.
On the face of things, it seems the offering’s purpose is to fund the development of existing and planned facilities in Canada and for general working capital purposes. However, the move also signals that the company is one step closer to a bigger Canadian stock listing.
Senior board listing to come?
As the company mentions in its news release, it could be a step toward qualifying for listing on the Toronto Stock Exchange (TSX) alongside other leading mature licensed producers in the Canadian cannabis industry. In terms of Canadian stock listings, the TSX is considered the senior board.
The attraction: access to capital
Bigger listings have several benefits for publicly traded companies, including increased access to capital. Companies listed on the TSX must meet more stringent minimum standards before listing; thus the senior listing gives them a reputational boost and better access to investment dollars.
They also tend to get more coverage. TSX listings are much more likely to have analysts following them, which means more investors get to know the business and volumes can increase.
An “in” to investment dealers
Another very attractive reason to uplist is usually for the increased access to institutional money. An estimated 40% of TSX trading comes from investment dealers worldwide, a sharp increase over TSXV trading which relies more on retail investors.
Lastly, if FIRE.V wants to be a member of an index or a composite along with the largest cannabis companies, it will have to be listed on the TSX rather than the Venture Exchange.
What the debentures will do for operations
A short form prospectus filed in each of the provinces of Canada, excluding Quebec brought the debentures to market last week. They will help the company fund its operations and growth.
The company’s 7ACRES facility has the capacity to grow roughly 13,330 kilograms of cannabis annually. And, the debentures will allow them to build out more flowering rooms, increasing production capacity to 50,000 kilograms per year.
Supreme Cannabis has agreements in place with six provinces, including Ontario – Canada’s biggest market. The company also entered into supply agreements with Tilray Inc. to supply them with medical marijuana market.
Valuation still relatively low
The Supreme Cannabis Corp. might be most attractive to investors right now as it has flown under the radar compared to many of its peers. Its valuation hasn’t skyrocketed as other’s have. Their market cap of roughly $420 million is still well below the billion-dollar valuations of their peers. For now.
To learn more about the marijuana investing industry, check out our introduction to cannabis investing.