Marijuana Business Magazine July 2019

Marijuana Business Magazine | July 2019 70 The final settlement, or closing, gen- erally occurs one to two weeks after the final prospectus is filed and regulators issue a decision document. At closing, your company’s securities are issued, the proceeds from the issues are delivered and shares begin trading on the CSE REVERSE TAKEOVERS Companies that have gone the RTO route include Minneapolis-based Vireo Health, Denver-based MJardin, Phoenix-based 4Front Holdings and Oakland, California- based Harborside. Beyond assembling your team and record preparation, the first big step in an RTO is identifying a suitable shell company that has been scrutinized for undisclosed liabilities or other red flags. Similarly, a cannabis business leery of shell companies with hidden histories can instead find a shelf company to merge with. Shelf companies are businesses established with all the requirements for going public, such as an appropriate number of shareholders, but unlike shell companies, they have no operating histo- ries and, thus, no potential baggage. This is the route iAnthus took to listing on the CSE, a process that started with establishing a business entity in British Columbia in 2013. The main reason iAnthus went with a shelf instead of a shell company was because executives “didn’t want to have to deal with some security that came out of the woodwork with a shell company— some convert that no one knew about or some liability from a mining accident 10 years ago that wasn’t properly disclosed,” said Ford, the company’s CEO. “We wanted to keep it very clean, so we used a private company that met listing requirements rather than using a publicly traded vehicle.” It was also important, Ford noted, to structure the merged entity in a way that it would be allowed to use the Canadian process for acquisitions in the United States without having to pay taxes. Once the merger portion of the RTO process is done, the resulting company must prepare an information circular—a “prospectus-level” document—that includes many of the same drafting and review procedures required in an IPO. Unlike a prospectus, circulars are not reviewed by provincial regulators, just the CSE. RTO-minded firms have the option of doing a private placement to offer securi- ties to certain potential investors. This is done to ensure that the post-RTO entity can meet CSE listing requirements and has enough working capital to operate as a public company after closing. The deal must also be approved by a majority of the shell or shelf company’s shareholders. This allows the cannabis company to file approval documents with the CSE, which in turn issues a final bulletin announcing the listing. Private placement funds are then released from escrow, and common shares of the resulting issuer begin trading on the CSE. THE CSE’S FUTURE With the odds of federal legalization growing, major U.S. exchanges could soon be open to plant-touching companies. Does that mean public- minded marijuana businesses are skipping the CSE and waiting for U.S. markets to open? “I don’t think it’ll peter out any time soon, even if the Nasdaq and NYSE open up,” said Scott Hammon, partner and chief operating officer of the MGO|ELLO Cannabis Alliance, an international business services firm headquartered in California. “But you are seeing people rethink or re-evaluate, whereas 12 months ago, there wasn’t a reason to re-evaluate be- cause people thought (federal legaliza- tion) would happen at some point. But some point is more like five years down the road, rather than maybe 12 to 24 months.” Applying for a Listing on the CSE Companies applying for a listing on the Canadian Securities Exchange must file the following documents: ☐ Form 1A: Application Letter ☐ Form 1B: Listing Application ☐ Form 2A: Listing Statement ☐ Form 2B: Listing Summary ☐ Form 3: Personal Information Form, Part 1; Personal Information Form, Part 2 ☐ Form 4: Listing Agreement ☐ Form 5: Quarterly Listing Statement ☐ Form 6: Certificate of Compliance ☐ Form 7: Monthly Progress Report ☐ Form 8: Notice of Prospectus Offering ☐ Form 9: Notice of Proposed Issuance of Securities ☐ Form 10: Notice of Proposed Transaction ☐ Form 11: Notice of Proposed Stock Options Source: MGO | ELLO National Cannabis Alliance; forms available at thecse.com/support/all-forms Hustle America