Last month, the Nasdaq quietly submitted a proposal to the SEC regarding Regulation A+. It is simple enough to quote: “Any Company listing on Nasdaq in connection with an offering under Regulation A of the Securities Act of 1933 must, at the time of approval of its initial listing application, have a minimum operating history of two years.” On April 18 the SEC published the proposal soliciting comments on the proposed rule change.
Last week I gave a talk at The Reg A Conference entitled, “Where Has Reg A+ Gone Right?” There are a number of good things to list since deal making began in earnest in July 2016 following dismissal of a court challenge to the Reg A+ rules. Almost 125 deals, averaging $10 million per deal, have been completed. About a dozen community banks and tons of real estate investment trusts have successfully gone public using Reg A+. And ten issuers got listed on Nasdaq or the NYSE, though unfortunately their stocks have not fared well generally. The SEC also approved allowing full reporting issuers to use Reg A+, particularly helping smaller OTC companies with an easier path to raising money. Cannabis companies, which generally are not able to list on the big exchanges, also have begun to see the benefit of Reg A+ to raise money in the over-the-counter markets without dealing with state “blue sky” merit review of their IPO.
The NYSE recently decided to pause taking new Reg A+ issuers, and the Nasdaq lately had been slow walking them. This proposed requirement to be operating two years to get a Nasdaq listing makes sense. Some (but not all) of the 10 exchange listed IPOs were pretty new companies. This may partially explain their challenge in building market support for their stocks. Newer companies can list over the counter initially then move up. If this encourages more use of Reg A+ and Nasdaq’s support of these listings, then this can be a positive step in the Reg A+ story, which is only in the first inning.
In a HUGE announcement last week, Nasdaq, Inc., the parent company of the various stock exchanges bearing that name, decided the exchanges should no longer be called NASDAQ. Instead, they are “re-branding” as just plain Nasdaq, i.e. initial cap then lower case.
Why? Well, the name had been upper case because it stood for the National Association of Securities Dealers Automated Quotation system. The NASD no longer exists since it was merged in 2007 with the NYSE’s regulatory arm to form the Financial Industry Regulatory Authority (FINRA). So they’re acknowledging that people just know “Nasdaq” and it doesn’t need to stand for anything anymore.
The NYSE also recently re-branded its lower tier market from NYSE MKT to NYSE American, harkening back to the exchange’s prior history as the American Stock Exchange before the NYSE bought it. Does this stuff matter to anyone? Do these changes result from big high level strategy meetings? As a former marketing major, I would love to know. But alas likely we shall not. You are now free to continue going about your day.
On June 19, 2017, the New York Stock Exchange withdrew its proposal, originally submitted in March, to allow companies to list on the big board through a so-called “self-filing” without an IPO. In a self-filing, a company seeks for previously issued shares of stock to be registered with the SEC so that they can be publicly resold, and this is the method by which the company goes public. No new money is raised in the process.
Shortly after the SEC’s proposal, online music provider Spotify said it might consider a self-filing. The company is flush with cash and does not need to raise money currently, but sees the benefit of being public and in avoiding an expensive underwriting firm.
The NYSE did not indicate why it decided to change its mind. Did they fear the SEC would not approve it for some reason? Did they receive resistance from the investment banking community? One can only speculate. It is disappointing that this legitimate alternative to an IPO will not be available – at least in the near term – to companies seeking the advantages of a public trading stock on the world’s largest stock exchange.
Update: On July 6, 2017, an NYSE representative confirmed, according to www.law360.com, that the proposal was re-submitted in mid-June and is now awaiting SEC approval. The exchange is also seeking accelerated approval from the SEC since their original request was filed in March and received no public comments. This is good news!
In a major positive step for the cannabis industry, the New York Stock Exchange last month listed a new real estate investment trust called Innovative Industrial Properties (NYSE:IIPR), the first cannabis company to be listed on a US national exchange. The company plans to invest solely in real estate intended to be leased out to cannabis growers. In the IPO they raised $67 million, much less than expected. The price has not moved above the IPO price, but it has moved steadily up recently after an initial drop on its first few days of trading.
Other challenges analysts cite: the concentration of investment in one industry, management not experienced in cannabis, and the high uncertainty of the future of federal oversight under President-elect Trump. Trump has said he is fully behind medical marijuana, not a fan of recreational use but believes it should be up to the states, has been against the war on drugs for years and is certainly pro-jobs and pro-taxes coming in. But many are concerned about his nomination of Alabama Senator Jeff Sessions to be the next US Attorney General. As recently as this April, Sessions said, “Good people don’t smoke marijuana” and that it’s “not the kind of thing that ought to be legalized.”
Congress has kept the feds from using money to go after those properly complying with state cannabis laws. But those actions, in appropriation bills, have to be renewed each year, and recent parliamentary changes may make that more difficult. The key question will be whether Trump allows Sessions free rein on the issue. That’s the unknown. But this new listing is still very big for the industry, especially after Nasdaq’s very strong refusal to list MassRoots earlier this year.