Marijuana IPOs to Consider Post-Legalization
A lot of digital ink has been spent on marijuana legalization—and with good reason.
Legal cannabis is among the fastest-growing industries in the world, with new stocks popping up almost every week. To take advantage of this mega-trend, we’re looking at two upcoming initial public offerings (IPOs): Tilray Inc. and High Times Holding Co.
Both firms are already active. However, they’re looking to raise additional funds from investors now that Canadian marijuana legalization is official. And that’s where you can come in.
The Tilray IPO and the High Times IPO are expected in the second half of 2018. Each presents a unique opportunity for investors, given that they’re coming online after the Canadian government legalizes marijuana. “After” is the operative word here.
Most firms already went public in Wave 1 and Wave 2 (I’ll explain below). This means IPO watchdogs are starved for something new, and that hunger makes them likely to bid up prices on new issuances.
Also, the market is bullish on marijuana stocks. It has been ever since Canada’s Liberal Party promised legalization during the 2015 election, which means that Tilray and High Times are entering friendly territory.
“We will legalize, regulate, and restrict access to marijuana,” said the Liberal Party when it was running for control of Canada’s government. (Source: “We will legalize, regulate, and restrict access to marijuana,” Liberal Party of Canada, last accessed June 26, 2018.)
The party also said that “Canada’s current system of marijuana prohibition does not work,” and that “too many Canadians end up with criminal records for possessing small amounts of the drug.”
It was strong language. A firm promise.
Three Waves of Marijuana IPOs
When the Liberals won the Canadian election—capturing a large majority in the House of Commons—fast-moving entrepreneurs launched their marijuana IPOs within months. I call this Wave 1.
Wave 1 included companies like Canopy Growth Corp (NYSE:CGC) and Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB). These are well-established behemoths in the Canadian marijuana space, capable of producing on a mass scale.
Wave 2 arrived months later, when Prime Minister Justin Trudeau moved marijuana up the legislative agenda.
You’ll find names like Cronos Group Inc (NASDAQ:CRON) and Hydropothecary Corp (OTCMKTS:HYYDF, CVE:THCX) in this grouping. Both are second-generation startups that found interesting ways to stand out from the pack.
By this time, marijuana IPOs had floated into the foreground of capital markets. Some of them had gained 200% to 300%, making them impossible to ignore.
Now a small group of marijuana stocks, comprising Wave 3, is looking enter the stock market. Tilray and High Times are the ones we’re interested in.
Even without putting all their eggs in one basket, investors were able to double their investments.
Just look at the Horizons Medical Marijuana Life Sciences ETF (OTCMKTS:HMLSF, TSE:HMMJ)—it is up almost 120% from last June.
Chart courtesy of StockCharts.com
Clearly (or at least it’s clear to me), Tilray and High Times were waiting to see if Canada would follow through on its marijuana legalization promise. It did.
Bill C-45, as it was called, passed the House of Commons with a 205 to 82 majority on June 18, 2018.
The bill then got by the Senate, which was considered the only real obstacle to its passage. And then, finally, it will become enforceable law on October 17. (Source: “Vote #868 on June 18th, 2018,” Open Parliament, June 18, 2018.)
That’s one reason in favor of a Tilray IPO. The company already produces medical marijuana, but, if it’s being forced into the recreational market, it needs to operate at scale. Cash is an essential step toward that goal.
Besides which, Tilray and High Times will raise their profiles by going public, and that could inspire takeover attempts from bigger rivals. We’ve already seen a record amount of deals this year, so it’s not a stretch to imagine that each company dreams of being acquired.
Tilray IPO: 3 Facts to Know
Now on to more substantial matters. Here are three facts you should know about each IPO.
1. Scale is the first thing you should know about. Namely, Tilray wants to raise $100.0 million from its IPO. I feel that this is a healthy amount of cash, since it’s big enough to make a splash but small enough to tempt Aurora into acquisition talks.
The second fact is why Tilray is going public.
2. According to the Tilray S-1 filing, the company wants to “fund the build out of cultivation and processing capacity at our Enniskillen, Ontario, London, Ontario, and Cantanhede, Portugal facilities.” (Source: “Tilray, Inc. S-1 Filing,” U.S. Securities and Exchange Commission, last accessed June 26, 2018.)
Since these objectives are stated clearly in the “Use of Proceeds” section, you can be fairly confident that Tilray won’t blow your cash on random marketing campaigns or something silly like that. I like to see these kinds of specifics in an S-1 filing.
3. The third thing you should know: Tilray would trade on the Nasdaq stock exchange under the symbol “TLRY.”
High Times IPO: 3 Facts to Know
High Times is a publisher—that’s probably the first thing you should know.
It runs several magazines, including the 40-year-old High Times magazine and web sites that focus specifically on cannabis and cannabis-related content.
But what makes High Times truly special among marijuana stocks is an ability to target the U.S. marijuana market without violating U.S. federal law.
After all, High Times neither grows nor distributes marijuana plants. It simply sells information to consumers and ad space to businesses. (Source: “High Times refreshes IPO plans as cannabis companies build buzz on Wall Street,” Reuters, June 19, 2018.)
Second, before the High Times Nasdaq listing goes live, investors can purchase discounted shares as part of the company’s “pre-sale.” Each share costs $11.00, which is approximately 10% cheaper than the forecasted IPO price.
Interested investors will likely want to get their hands on this stock as soon as possible, since it will only be available for a limited time. For more information on how to proceed, investors can visit the High Times web site.
Third, High Times might enter the stock market through a reverse takeover of Origo Acquisition (OTCMKTS:OAQCF). In fact, this was the original plan. But there was some confusion about whether Origo would be delisted from the Nasdaq, so High Times decided to raise some cash through its pre-sale while the fog cleared.
Origo has until September 12 to resolve its issues. If it fails, High Times will have to find a different route onto the market.
We don’t have a specific High Times IPO date (or a Tilray IPO date, for that matter), but it’s safe to say it will happen near October 17. That is the official date for Canadian marijuana legalization.
As for my view on these marijuana IPOs, I think Tilray stock is an interesting acquisition play. Other than that, it seems unimpressive. High Times is more promising, given its relatively uncontested playing field in the marijuana space.
Keep an eye out for both of these stocks.