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David N. Feldman

Nasdaq to Limit Reg A+ to Seasoned Companies

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.

David N. Feldman

First Cannabis Company is Exchange-Listed Amid Uncertainty

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.

NYSE Further Narrows Broker Discretionary Voting: Potential Impact on a Company’s Proxy Season Planning

The New York Stock Exchange (NYSE) once again has limited the ability of a broker to vote on proposals at shareholder meetings for which the broker has not received voting instructions from its customers. This narrowing follows recent rule amendments triggered by the Dodd-Frank Act prohibiting brokers from voting uninstructed shares in the election of directors and on proposals relating to executive compensation.

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