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David Feldman

Capital Markets Broaden for US Cannabis Companies

The last few months have witnessed a number of dramatic developments for American companies seeking capital in the fast-growing cannabis industry. In total, these changes portend greater access to funding for these companies. Here is more on these notable deals. (Note: none of the companies mentioned is a client of our law firm).

Greenlane. In April, Greenlane Holdings, a vape distributor, completed an IPO onto the Nasdaq with underwriters led by Cowen & Co., raising $102 million. This was the first time the national exchange listed a US company admitting it was in the cannabis industry. It had previously listed Canadian-based companies since they were operating in a federally lawful manner there. This also was the first underwritten IPO for a US cannabis company, and the first entry by an investment bank of Cowen’s tier.

Akerna. In June, a “special purpose acquisition corporation,” or SPAC, completed its merger with MJ Freeway, the purveyor of the widely used seed-to-sale software for which the company is named. That merged company, now known as Akerna, also is trading on Nasdaq. This was the first SPAC merger with a US cannabis company, and the second to be approved for trading by Nasdaq.

cbdMD and India Globalization. Not to be forgotten, the New York Stock Exchange and its lower tier exchange known as NYSE American have agreed to continue the listings of two companies that have announced their entry into the CBD market. In May, cbdMD, formerly Level Brands, best known as supermodel Kathy Ireland’s company, changed its name and symbol to reflect its move into cannabidiol-based products. India Globalization, which shifted its focus to CBD, was initially delisted. When the company appealed, the exchange reversed the decision and relisted the company back in February.

Arcview deal. In a relatively small deal just this month, the investor network Arcview Group (disclaimer: I am a proud member) raised about $8 million from two key investors, one of which was a well-known cannabis based fund. The other, Trivergance, is a traditional private equity firm that has invested over $1 billion, none in the cannabis space until now. As reported by MJBizDaily, while some traditional funds have invested in the space, this deal is notable because Trivergance served as a lead investor. The move of venture and private equity firms from the sidelines and into cannabis now has begun.

Implications? First, these developments likely will lead to fewer US companies feeling the need to go public in Canada, where previously companies believed capital was easier to access. Second, the growers and sellers of cannabis in the US, those that “touch the plant,” have not yet been permitted to list their shares on a national exchange. It will be interesting to see if and when the exchanges relent on their reticence to list these now large and fast-growing entrepreneurial enterprises as the march to US legalization continues. In the meantime, capital as fuel for growth is more and more available to these US businesses.