Canadian cannabis companies face an interesting dilemma, enter now into the US cannabis market, lending their expertise and capital to seize an early advantage, or wait, unsure of when federal regulation will shift and avoid losing money on a market that may never change. Two recent examples give us a closer look at the stakes, benefits, and costs involved for those targeting US markets.
While the long-awaited legalization of cannabis in the U.S. still lacks a clear timetable, the lack of clarity is not stopping cannabis producers. Cannabis companies across the globe, including many from Canada, are continuing to make strategic moves to position themselves to take full advantage of the eventual U.S. shift.
Want to stay up to date on the rollers and grinders of the cannabis world? Need to keep up with cannabis news, businesses and investments in the U.S. Canada and abord? Download our Hemp.IM companion app today!
Hexo, Another Canadian Cannabis Company Takes the US Plunge
The latest example of this ongoing trend came just late last week. when Canada’s Hexo Corp (TSX:HEXO) announced it was investing in a California-based U.S. cannabis company. This means-end maneuver will allow the Canadian company, in the medium term, to take full and immediate advantage of the world’s largest cannabis market (once federal legislation clears a regulatory pathway). However, it does come at a short-term price.
Last Friday, Hexo’s shares fell about 27 percent on the New York and Toronto stock exchanges following the announcement that it had raised $140 million through a public stock offering. The capital is for Hexo’s U.S. cannabis business as well as the acquisition of another Canadian-based cannabis company, Redecan Pharm.
Shares recovered some of those losses yesterday, closing in New York at US$2.55, up nearly 10% on the day, while on the TSX, Hexo closed at C$3.24, up about 9.5% on the day.
Currently, Canadian cannabis companies are not allowed to operate in the U.S., as cannabis is still illegal at the federal level, although it is legal in a growing number of states.
Hexo CEO Sebastien St. Louis did not specify which California company Hexo would take a stake in. But his company’s plan is specific.
In an interview, St-Louis said:
“It’s simply time to enter the market and bring the technology we’ve developed in Canada to the rest of the world. And what better place to start than California?”
The technology he is referring to is Hexo’s manufacturing of pre-rolled cannabis products.
Hexo’s plan to position its entry into the U.S., focusing on a company operating in a single state, is different from other Canadian companies that partner or enter into option agreements to acquire stakes in U.S. operators operating in multiple states.
Tilray signs agreement with US Cannabis Distibutor MedMen
Also in the area of U.S. market access strategies, Tilray Inc (NASDAQ:TLRY) revealed last week that it is acquiring the majority of the convertible debt of Medmen Enterprises Inc Class B (OTC:MMNFF). Again, this is another means-to-end strategy that will allow Canada’s Tilray to obtain a minority stake in the U.S. company once the U.S. legalizes cannabis.
According to a BNN Bloomberg report, Tilray and a group of investors will purchase $165.8 million in outstanding senior secured convertible bills that were held by Gotham Green Partners, a New York-based cannabis private equity firm.
Upon the legalization of cannabis at the federal level in the United States, this position will give Tilray a six-month period to convert the debt into equity. Ultimately, this will give Tilray a 21% stake in the U.S. cannabis distributor MedMen.
MedMed operates in seven U.S. states – Arizona, California, Florida, Illinois, Massachusetts, Nevada and New York. It has 25 retail locations where it sells cannabis and holds 21 additional retail licenses.
Most of its retail operations are concentrated in California, Florida and Illinois, the three largest cannabis markets in the United States in terms of revenue generated.
Tilray’s shares gained just over 4% yesterday, closing at $13.37 on the NASDAQ. Over the past year, the stock has gained over 93%.
The two case studies suggest that while U.S. cannabis investments can be seen as risky for Canadians, a targeted and coherent set of investments can pay off not just in the long run but in the short term as well.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Hemp.im, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
First published in Investing.com a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Hemp.im assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Hemp.im is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.