Marijuana Business Magazine July 2019

Marijuana Business Magazine | July 2019 68 In an IPO, a private company applies with the CSE and to the provincial securities regulator in the province where the business is located. Once the exchange and the regulators sign off, the stock begins trading on the CSE. In an RTO, the private company is acquired or merges with a public shell company already listed on the CSE, or alternatively a “shelf company” that is specifically created to go public but has no operating history. The private compa- ny then gains majority ownership of the ensuing entity and its listing through an exchange of shares or other assets. Each route has advantages: Time: While either method can take 18-30 months, the RTO is generally quicker, mainly because the paperwork is reviewed only by the CSE. An IPO requires longer regulatory review and comment periods. The time of close to financing—or how soon your shares can begin trading after the deal has closed—is also shorter in an RTO because the company can begin trading when the transaction is announced and can potentially complete the capital raise in a private placement. In an IPO, you cannot begin marketing your company’s shares to investors until the preliminary prospectus is filed with provincial securities regulators—and you cannot raise capital until the final prospectus is filed. Costs: IPOs cost more because they require more due diligence than RTOs. Why? Canadian securities regulators must approve the transaction, and there are liabilities attached for the issuer, underwriters and other parties, including such risks as the IPO underperforming or the company getting sued. One of the biggest costs of an IPO is the underwriter’s commission, which is usually 5%-7% of the offering and is subject to negotiation between the issuer and the underwriter. Liabilities and Dilution: In an RTO, cannabis company executives must scour shell companies for any past hidden liabilities (such as lawsuits) and must give up a percentage of shares to the shell company’s legacy shareholders, meaning stock dilution. Capital Potential: IPOs are commonly considered higher profile and may be more appropriate for larger capital raises. IPO STEPS To avoid having to register and report to the SEC, U.S. companies must obtain Foreign Private Issuer (FPI) status, which is accomplished by establishing a Finalize long-term business plan. Assess corporate governance and reporting requirements for public companies in Canada. Understand the listing requirements for the CSE. Establish internal teams responsible for managing the IPO/RTO. Review accounting policies and historical financial records. Assess internal controls and financial reporting systems, and upgrade where necessary. Determine whether to seek an IPO or an RTO. Assess board of directors and begin process of strengthening team. Perform audit/review of financial statements. Perform tax compliance review. Choose external advisers: • Underwriter • Legal counsel • Audit provider • Tax specialist • IPO/RTO readiness consultant 12 Months IPO RTO 6-12 Months Conduct pre-filing discussions with CSE. Finalize historical financial documents and technical reports. Determine operating financial model and structure. Resolve all pending legal and due diligence concerns. Develop investor relations strategy and value story. Perform initial review of pricing considerations. Identify target shell company and launch negotiations. Begin due diligence process with shell company. Determine stock ratio/range. Timeline for Going Public in Canada Hustle America