Publicly Traded Companies Losing Out On Marijuana Land-Grab

Businessman sat on a chair in the corner wearing a dunce hat
Publicly traded companies have traditionally stayed away from marijuana. At the most, they have involved themselves in hemp-based products and ancillary markets such as grow equipment and real estate.

Two pink sheet companies (trade on the over-the-counter markets only) now say that they are applying for licenses to grow medical cannabis (one in Nevada and another in Ontario), while another public firm bought a leading cannabis-infused edibles company.

“Based on my conversations with companies that are public and private, it’s likely that we’re going to see licensing models emerge, whereby proprietary strains, extraction processes or edible brands are put into public company vehicles,” said Alan Brochstein; Brochstein runs a cannabis-focused stock website for investors. “We are headed in this direction because investors want it that badly.”

Terra Tech (stock symbol: TRTC) announced in early April that it will compete for permits in Nevada. The company – which sells hydroponics equipment – may or may not use any permits it obtains, depending on the regulatory climate at the time. Terra Tech is hoping federal regulatory agencies – such as the SEC – will issue guidance clearing the way for public companies to get involved in growing cannabis.

“We don’t know where SEC stands right now. It’s a gray area,” Peterson said, “But we don’t want to miss the window in what we expect to be a big new market. We don’t have concerns about [being] a public company competing for these licenses.”

The publicly traded firm Mentor Capital (MNTR) recently bought most of Bhang Chocolates, one of the most well-known cannabis-infused edibles companies. At the same time, Creative Edge Nutrition (FITX) is applying for a cultivation license in Canada, where medical marijuana is officially recognized by the government. Bill Chaaban, CEO of Creative Edge, said the company will not be looking to grow cannabis in the United States until there is a change in Federal law.

“We’re not violating Federal law. We will cultivate through a Canadian subsidiary,” Chaaban said.”

Canada offers a glimpse of what could happen in the United States if the government changes its position on medical cannabis: Earlier this month, a cultivation company opened on the Toronto Venture Exchange to much fanfare. Other publicly traded companies in Canada are pursuing similar opportunities.

In the United States, companies are becoming more aggressive because of a surge in interest in cannabis stocks.

“Basically, higher valuations are encouraging entrepreneurs to take more chances, because they are getting paid more to take these chances,” Brochstein said. “The public market caps are really high, and I think investors are recognizing a lot of these companies are not as leveraged as much as they really want them to be. People want to invest in cannabis, so they’re really willing to pay a lot right now.”

There are still valid fears that the SEC will crack down and halt trading of companies that deal with marijuana.

“No one wants a worst-case scenario of waking up one morning and having their shares halted,” Peterson said. “Public companies live and die by trading, and when that shuts off it’s a dangerous thing for shareholders and the company.”

Opportunities in the cannabis market are perceived as so big that some companies are willing to shoulder additional risk.

“We have a fiduciary responsibility to shareholders to not move in front of a moving bus, but also to not sit and wait while significant opportunities pass us by,” Peterson said. “We can’t wait and watch others come in with appetite in this space and grab a bunch of market share quickly.”

About Douglas Slain

Doug received a JD from Stanford Law School, a MA from the University of Chicago, and a BA from DePauw University (Phi Beta Kappa). After practicing real estate and finance law at then Pillsbury, Madison & Sutro, he founded four national monthly law reporting titles now owned by Thomson-Reuters. He served two consecutive terms as chairman of the American Bar Association’s General Practice section’s Professional Responsibility Committee. Slain was an ABA-appointed rule of law consultant to the Ministry of Economy for the Republic of Latvia as its secured transactions adviser. He taught briefly at Stanford Law School as an adjunct clinical law professor. Slain has been the managing partner of Private Placement Advisors since August 2009. In January 2013 he founded Outliers Network.

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