Since cannabis became an investible asset, hundreds of pot companies have listed on the Canadian Securities Exchange (CSE). Meanwhile, they’ve also been listing on the Over-The-Counter (OTC) markets in the U.S. There are presently 136 cannabis-related securities on OTC Markets, and 144 on Canadian exchanges. How do pot companies decide where to – and not to – list?
Why not the big board?
It’s sometimes easy to forget that pot is still illegal at the federal level in the U.S. As such, the major exchanges – NYSE and Nasdaq – only allow listings from companies without American operations. Naturally, 5 Canadian producers fit that bill.
The New York-based OTC markets, however, allow listing companies on qualified international stock exchanges like the Toronto Stock Exchange to trade. Furthermore, they don’t require listing companies to have Securities and Exchange Commission registration.
“The exchanges are very risk-averse. They’re old, staid institutions,” Jason Paltrowitz, executive vice president of corporate services at OTC Markets, said in an interview with BNN. “We want to be the market for entrepreneurs.”
Another reason to list on the OTC markets? The fees are much lower, a welcome relief for smaller capitalization participants. “For the companies that aren’t in the billion-plus market cap range, the benefit from being listed on an exchange is minimal to non-existent,” Paltrowitz said.
The 136 pot stocks on the OTC markets range in market cap from US$16 billion (Tilray Inc.) to MedMen Enterprises Inc.’s US$2.6 billion to penny stock listings.
The “Cannabis” Securities Exchange
In Canada, some are referring to the budding Canadian Securities Exchange as the Cannabis Securities Exchange. While that exchange’s previous focus was on junior mining and energy companies, cannabis-related stocks now account for a quarter of its 450 listings.
The 144 companies listing in Canada have a total market value of nearly $57 billion. Those companies include Canopy Growth Corp., with a $12.2 billion market cap, and Aphria Inc. at $4 billion market cap.
Meanwhile, dual-listing on the larger NYSE or Nasdaq exchanges can pull traders from OTC. As such, OTC listed companies may be leary of dual-listing. However, firms listed on Canadian exchanges enjoy up to a 35 percent increase in daily trading volume in their home market by listing concurrently on the OTCQX.
Why do stocks get a boost from OTC dual-listing?
The OTC has market makers who quote prices at which they will buy and sell stocks. When a dual-listed order is put in on the OTC market, the maker can execute the order north of the border as well. Accordingly, the trade will also show on the Canadian exchange.
The flow between markets helps to maintain volumes after dual-listing. Furthermore, Bid-Ask spreads and the market depth can improve along with trading volumes.
For a primer on investing in the cannabis sector, check out our introduction to cannabis investing.