Trulieve to list on NYSE, a first for US cannabis sector
More may be on the way: several other US cannabis companies have announced reverse stock splits with the intention of listing on a major exchange.
Trulieve said Friday that it will list on the New York Stock Exchange come June 10, which would make it the first US cannabis company to ever list on a major American exchange.
The move comes after the Department of Justice issued a rule in April reclassifying weed from state-licensed medical cannabis companies as a less dangerous drug and giving companies that sell adult-use cannabis an expedited hearing process starting this month. The benchmark ETF for US cannabis stocks, MSOS, initially fell on the news, considering most companies sell both adult-use and medical cannabis.
MSOS rose more than 7% on the news. Canadian cannabis companies such as Tilray, Canopy Growth, andVFFfell.
Major exchanges have historically not allowed companies that grow or sell weed in the US to list. Following the DOJ rule, Trulieve decided to get creative: the Florida-based company said in a regulatory filing earlier this week that it would spin off its adult-use cannabis business in order to apply to list on the NYSE.
Trulieve’s move worked, and it likely won’t be the last US cannabis listing on a major US exchange.
Last week, Curaleaf announced a 1-for-3 reverse stock split “in preparation for a US stock exchange uplisting.” On Monday, Verano Holdings announced a 1-for-5 reverse stock split “to prepare the company for [a] prospective US stock exchange listing.”
A reverse stock split reduces the amount of shares outstanding and lifts the share price, giving companies a better shot at meeting the exchanges’ minimum price requirements.
Trulieve’s medical cannabis business is a bigger chunk of its sales, which is likely why it chose to spin-off its adult-use business in exchange for an NYSE listing. US cannabis operators who sell more recreational cannabis may likely wait until after the DOJ’s hearings this summer to try and list.
“If federal rescheduling expands to the adult-use market, the implications for the capital markets landscape shift dramatically,” said Adam Stettner, CEO of FundCanna, a cannabis industry lender. “Until then, what we’re seeing is selective institutional appetite responding to a targeted policy shift, not an industry wide unlock. Those who understand the distinction between what’s changed and what hasn’t will be positioned to move when the door opens wider.”
It’s unclear if the exchanges tweaked their rules at all to allow more US cannabis companies to list. (Nasdaq declined to comment on whether it would allow US medical cannabis companies to list on its exchange.)
A new era
Without the ability to list on major exchanges, US cannabis stocks have historically traded on over-the-counter markets, which have less liquidity than major exchanges.
The AdvisorShares Pure US Cannabis ETF, which is the primary proxy for investor access to US cannabis companies, known by the ticker MSOS, debuted in 2020 with the goal of giving investors a convenient way to gain exposure.
That ETF has been able to list on the New York Stock Exchange because it does not directly hold the stocks; it holds derivatives. AdvisorShares buys or sells swap contracts, usually from a couple of major banks like Nomura, that hold the underlying stocks.
Listing on major exchanges allows pot investors to easily buy shares of individual US cannabis operators through typical brokers instead of low-liquidity exchanges. Trulieve, which has performed better than many of its peers, is MSOS’s biggest holding, making up about 26% of the fund as of Friday.
Starting next week, MSOS will start to convert “an awful lot” of its Trulieve swaps to direct holdings, Dan Ahrens, who manages MSOS, said in an interview. Many institutional investor compliance departments tie their standards to NYSE or Nasdaq, he said, meaning they may start adding US cannabis companies to their portfolios soon.
“It's gonna change rather dramatically and rather quickly,” he said. “There's an awful lot of real institutions that still can't invest in this area. Maybe after next week when Trulieve is listed, a lot of those barriers will quickly come down.”
Frederico Gomes, director of institutional research in life sciences at ATB Capital Markets, said uplisting “expands investor access to the underlying companies, but it doesn't eliminate the value of a diversified investment vehicle.”
“Not every investor wants to pick individual winners, and ETFs remain an efficient way to gain diversified exposure to the sector,” Gomes said.
