Nasdaq finally ‘warming up’ to Canadian cannabis companies with U.S. exposure. Could American growers be next?

By Steve Gelsi

Jefferies analyst Owen Bennett flags talks between Curaleaf, the largest U.S. cannabis company, and ‘major exchanges’

The Nasdaq stock exchange is “warming up” to the idea of continuing to list Canadian cannabis companies even if they have exposure to the U.S. market – and a U.S. cannabis company could be next, an analyst at Jefferies said.

Jefferies analyst Owen Bennett on Friday speculated that the Nasdaq could allow U.S.-based cannabis company Curaleaf Holdings (CA:CURA) – which currently trades on the Toronto Stock Exchange – to list on its exchange, having allowed Canadian cannabis companies Canopy Growth Corp. (CGC) and SNDL Inc. (SNDL) to continue to trade after both companies bought U.S. assets.

Bennett noted that on a Spaces discussion on the social-media platform X, formerly Twitter, Curaleaf Chair Boris Jordan said “that a ‘major U.S. exchange’ had contacted Curaleaf to begin discussions.”

A Curaleaf spokesperson said in an email to MarketWatch that the company is in ongoing dialogues with “multiple major exchanges” about potential plans. The company declined to provide additional details.

A Nasdaq spokesperson did not comment.

SNDL and Canopy Growth, which already trade on the Nasdaq, are using what Bennett describes as a strategy of walling off U.S. assets through exchangeable shares.

Even though the Nasdaq prohibits U.S.-based cannabis companies from trading directly on its exchange, it has allowed the two Canadian companies to continue to trade despite pending deals to move into the U.S. cannabis market.

“Nasdaq … appears to be warming up to the idea,” Bennett said.

This week, Calgary, Alberta-based SNDL said it received a green light from the Nasdaq for plans by its company-sponsored joint venture SunStream USA to buy U.S. cannabis assets.

“SNDL is satisfied that the SunStream USA Group structure conforms to applicable laws and is not aware of any reason that would cause SNDL to not be compliant with Nasdaq listing rules,” the company said.

According to Bennett, the move resembles an exchangeable-share structure that Canopy Growth recently approved as part of the creation of its Canopy USA business. Canopy USA holds options to acquire three U.S.-based cannabis companies: Wana Brands, Jetty Extracts and Acreage.

Also read: Constellation Brands moves itself further away from cannabis grower Canopy Growth’s business

For now, the federal U.S. prohibition on cannabis continues to keep U.S.-based cannabis companies from being listed on the Nasdaq or the New York Stock Exchange.

The largest multistate U.S. cannabis companies – including Curaleaf, Green Thumb Industries Inc. (GTBIF), Trulieve Cannabis Corp. (TCNNF), Verano Holdings Corp. (VRNOF) and Cresco Labs Inc. (CRLBF) – currently trade on the Toronto Stock Exchange or the Canadian Securities Exchange.

Retail investors interested in the space often have to buy stocks in those companies on the more thinly traded over-the-counter market, where fewer institutional managers of exchange-traded funds participate.

This arrangement also restricts the flow of capital that the U.S. companies could potentially raise from domestic investors who may currently be avoiding the sector.

Meanwhile, cannabis stocks got a jolt upward this week after the U.S. Department of Justice said the Drug Enforcement Administration will issue a rule to move cannabis to the less-restrictive category of Schedule III drugs from Schedule I under the U.S. Controlled Substances Act.

Also read: Cannabis stocks pull back after rallying on DEA’s plans to reclassify marijuana

Opposition to that move has arisen from Washington-based Smart Approaches to Marijuana, a group opposed to the legalization of cannabis, which has vowed to challenge the rescheduling effort in court.

Kevin Sabet, president of SAM, called marijuana a “psychoactive drug known to come with serious health and mental-health consequences.”

-Steve Gelsi

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05-03-24 1645ET

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