August 2018

Across Canada, a growing number of investment bankers and larger insti- tutional investors are embracing the cannabis sector, opening access to a wider range of growth capital, said Pete Kadens, CEO at Chicago-based GreenThumb Industries (GTI), a multistate medical marijuana company that went public on the Canadian Securities Exchange in June. “If want to continue to grow, we have to have access to cost-effective capital,” he said. “Given the timing and our need for more capital to expand, we needed to enter the market that had the best opportunity for liquidity, and that was the Canadian market.” 3. Weigh a Reverse Takeover Versus an Initial Public Offering Companies considering going public have two main options to choose from: • An IPO, where companies offer stock on a public market for the first time. This is the traditional way most busi- nesses have entered the public market. • A reverse takeover (RTO), which involves acquiring a majority stake in a company already traded on a public market. In many cases, the existing public entity is a shell company with limited operations that’s in the market to be acquired. Knowing what’s right for your company depends on several variables, according to GTI’s Kadens. In June, his company went public on the Canadian Stock Exchange via a reverse takeover. “There are pros and cons of each,” he said of IPOs and RTOs. GTI weighed its options knowing the company wanted a cost-effective path with fewer regulatory hurdles, according to Kadens. “Speed to market was important to us, and that’s why RTO became the clear winner,” he said. “It allowed us to get to market faster, with an existing company that had already been audited, and that just made it an easier process for us.” Meanwhile, at The Green Organic Dutchman, Brody said an RTO was “never an option,” considering the firm’s size. “ The management of TGOD are all significant investors, and we protect the interest of all our shareholders,” Brody said. “An IPO may take longer and cost more, but it provides prospectus-level disclosure, the highest-level disclosure possible, with no dilution of cheap shell shares. For us, an IPO was the only option.” 4. Going Public Isn’t Cheap Once you’ve committed to take your company public, be ready to invest time and money, Kadens said. Even though his business chose what for GTI was the less costly and time-intensive RTO route, Kadens said the process “isn’t for the faint of heart, that’s for sure.” “It is easily a seven-figure endeavor, and you have to understand that from the outset and commit to that,” he said. Most of the costs are tied to lining up the experts needed to prepare your firm for the new regulatory reporting guide- lines the company will face as a publicly traded entity. “You just really have to be sure you’re hiring good advisers,” Kadens said. “The bankers, lawyers and accountants around you really need to know their stuff.The advice I’d give myself if we were going through this process again would be to just dial back the expecta- tions on how long you think everything is going to take.” 5. Have a Post-Public Plan Too often, companies consider going public “the end of the road,” said Paltrow- itz of OTCMarkets Group. “The reality is, it’s the start of the race,” he said. “If you’re not ready to do what’s required of you and disclose the way the markets want you to disclose, respond when investors want you to respond … then you are going to fail, and all of the work you put into going public was a wasted exercise.” Having a plan to market to investors, once public, is critical, according to Green Organic Dutchman’s Brody. “The biggest change you need to be ready for is you will have a new division in your company that needs to be trained and up and running Day One,” he said. Karnes agreed, noting that startups, in particular, have their work cut out for them. “For a company that has operated largely in an entrepreneurial state, it takes a lot of work to adapt and become more regimented,” he said. “You just really have to be mindful that you’re going to be opening your company up to much more scrutiny, and generally you’re just going to have more people in your face.” ◆ The Green Organic Dutchman Holdings opened for trading May 2 on the Toronto Stock Exchange. Photo courtesy of The Green Organic Dutchman 52 • Marijuana Business Magazine • August 2018