Acreage Holdings IPO Is Going to Be a Big Deal

Acreage Holdings IPO
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Acreage Holdings IPO: What You Need to Know

Another day, another marijuana stock initial public offering (IPO)—except this time it’s a high-profile entry: Acreage Holdings stock. I’ll cover all the details you need to know about the upcoming Acreage Holdings IPO, which has no fixed date yet.

The first and most obvious question is, “What does Acreage Holdings do?”

The short answer: It’s a marijuana firm with operations in 15 different U.S. states. But that answer doesn’t tell you much; what’s more important is that Acreage has HUGE brand-name power.

It has John Boehner, former Speaker of the U.S. House of Representatives, on its board of directors. Also on the board is former Massachusetts Governor Bill Weld. And the icing on the cake? Acreage owns exclusive rights to Willie Nelson’s marijuana brand.

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Yes, that Willie Nelson. The man who is as synonymous with cannabis as Cheech & Chong. In a market where there’s no McDonald’s or Nike, having an association with that kind of pot icon could be useful in stealing rivals’ market share.

If Acreage still doesn’t ring a bell, you might want to search your memory for High Street Capital Partners, LLC. That’s what Acreage was called less than six months ago. The company changed its name in March in order to pursue an IPO. (Source: “High Street Capital Partners, LLC Announces New Name and Strategy: Acreage Holdings,” Acreage Holdings, March 13, 2018.)

I can’t shed much more light on that decision. Perhaps the name High Street Capital sounded too much like a hedge fund. Perhaps a PR consultant or investment banker advised a name change. It doesn’t matter.

What investors should bear in mind is that the underlying company has existed for four years—not just the measly five months it has been called Acreage.

The company spent those years accruing statewide licenses to sell recreational and medical marijuana. It invested in local businesses and forged partnerships with suppliers and operators, deepening relationships and expanding production capacity.

Now, Acreage boasts a vast and vertically integrated portfolio of cannabis assets.

Acreage Holdings Going Public in Canada

Unlike some of the bigger marijuana giants, Acreage is not based in Canada. It’s born and bred in the U.S.

Nevertheless, the company is choosing to go public on the Canadian Securities Exchange (CSE).

The CSE, it should be noted, isn’t even Canada’s biggest exchange. Not by a long shot. That title goes to the Toronto Stock Exchange (TSE). However, marijuana firms have flocked to the CSE for its growing liquidity and relative openness to cannabis.

Around 70 weed-related stocks are currently listed on the CSE, many of them having arrived by way of reverse takeovers and mergers. Over 40 of them hail from the resource sector.

These unconventional routes suggest opportunism—cash-rich companies saw marijuana on the rise and decided to take advantage.

Kevin Murphy, CEO and founder of Acreage, believes this separates his firm from the rest.

The traditional benefits of scale for any business are dramatically amplified in the nascent world of cannabis…The difference between ‘good’ and ‘excellent’ execution is unusually large and we plan to take advantage of that by creating a template for excellence and delivering it systematically.

(Source: Ibid.)

It’s an interesting claim that I’ve heard several times before. Marijuana CEOs say the industry is a jungle right now, but that quality of execution will separate the hunters from the hunted.

And because legalization is happening so quickly, the winnings could be enormous.

Does an IPO in Canada Make Sense?

Short answer: Yes.

For marijuana companies looking to avoid federal scrutiny, Canada is the loophole that dreams are made of. It offers an easy way to raise lots of cash without the hassle of regulation. The Canadian Securities Exchange, in particular, is heaven for both executives and investors.

Murphy laid out the rationale in a recent press release.

We are planning on listing on the CSE for many reasons, including the positive reception that the Canadian institutional investment community has shown to the U.S. cannabis industry and to Acreage in particular.

Additionally, the CSE has become the exchange of choice for U.S. companies like ours…The liquidity on the CSE is incredibly attractive to Acreage, and we know that retail investors in the U.S. have become comfortable with that exchange. We expect to see a tremendous response to our offering this fall.

(Source: “Acreage Holdings Announces Closing of $119 Million Private Round – Largest in U.S. Cannabis History,” Acreage Holdings, July 23, 2018.)

This doesn’t mean Canadian markets are growing more popular in general, but rather that Canada’s upcoming nationwide legalization of cannabis (going into effect on October 17, 2018) has created a vibrant financial market for weed stocks.

Back in the land of the free, states are the deciding factor. A few, like California and Colorado, have taken the plunge—but that doesn’t mean much when investing is regulated by federal agencies. No one wants to poke the sleeping giant that is the United States Department of Justice.

It’s far simpler to list on a stock exchange north of the border and wait for legalization to take root down south. That way, you’re protected. The only potential roadblock would be a lack of liquidity, but Acreage recently closed a Series E funding round for $119.0 million.

Considering that this was easily the largest round of private investment in U.S. cannabis history, I think the firm is pretty well capitalized. And that’s not even counting the money it’ll raise from the Acreage Holdings IPO.

Analyst Take

Over the long term, it’s hard to make a determination about the Acreage Holdings IPO without having seen Acreage’s financial statements. We’ll only get a chance to do that when the company actually files.

In the short term, however, I think Acreage Holdings stock has explosive upside potential.

It received broad media coverage, including multiple TV appearances by its CEO.

While some analysts believe that doesn’t matter, studies show that familiarity generates strong impressions in low-information contexts. So, it really does matter that Murphy was seen on Bloomberg and CNBC.

Also, don’t forget about Boehner and Weld. Those two political insiders are—in addition to advising the company on legal and regulatory matters—giving a lot of credibility to what might just become a very successful IPO.