The successful initial public offering of cannabis company Tilray (TLRY) this month is a sign of more cannabis IPOs to come for U.S. markets before 2018 ends.
Canadian-based Tilray, a vertically integrated cannabis producer, closed its offering of 10.35 million shares of common stock recently. That included the full exercise by underwriters of their option to purchase 1.35 million additional shares of Class 2 common stock at $17 per share.
TLRY began trading July 19 on the Nasdaq Global Select Market at $23.05 and has gotten as high as $34.10 intraday, although it lost nearly 8% Friday to close at $24.30.
Tilray had the luxury of operating privately for several years prior to this month's IPO. Housed under the Privateer Holdings umbrella, Tilray was able to build a solid foundation, then hit the public markets from a position of strength.
The Green Organic Dutchman (Canadian ticker symbol: TGOD), which went public in Canada in May, also rewarded shareholders with a winning IPO. The shares started trading at 3.65 Canadian dollars on May 3 and went as high as C$8.28 before trading recently at about C$5.78.
Even more amazing is that TGOD hasn't reported any revenue yet, although it does seem to have made numerous deals for its products. Investors must be crossing their fingers that the harvests go well and the product is well-received.
Of course, not all cannabis IPOs or RTOs (reverse takeovers) have been hits right out of the gate. Consider MedMen Enterprises (MMNFF) . This dispensary company valued its shares at C$5.63 before trading on the Canadian Securities Exchange, but then after opening at C$5.25 the shares slid as low as C$3.62, but were lately on the comeback trail trading at C$4.78.
MedMen actually has more revenue to report than TGOD, but the company became a target of some negative traders and the beat down affected early trading. Now it looks like patient investors that ignored the negative trader stories could be rewarded as the MedMen stock slowly climbs back up the chart.
While MedMen may have been the first U.S. cannabis unicorn, it looks like it may not be the only one in the industry for long. This week, Acreage Holdings announced that it had raised $119 million -- the largest-ever raise for a U.S. cannabis company. CEO Kevin Murphy made it clear that this is just the lead-up to the company's IPO. Acreage is expected to list its shares on the Canadian Securities Exchange sometime in the fall, and the valuation is also expected to top the billion-dollar mark.
This highly anticipated IPO is looks to be generating a great deal of interest. The addition of former Speaker of the House John Boehner and former Massachusetts Gov. William Weld to the board has given many investors a great feeling of comfort.
"I think that when you have some heavier hitters with political clout, it keeps the momentum going and further legitimizes the industry," said Jason Wilson, president of Budding Equity Asset Management. "It's great for the industry in general. It speaks to the demand that investors have with respect to cultivators."
Acreage Holdings will also hit the public market from a position of strength. It has one of the largest footprints of any U.S. cannabis company, with operations in 13 states (and soon to be 15). This new infusion of cash will enable the company to grow even larger as it sets about acquiring licenses or applying for new ones.
Demand is so strong for Acreage Holdings that the company didn't even have to hire bankers to raise the funds. Plus, the original plan was to raise only $50 million and it ended up with $119 million.
Wilson said that "having companies like Acreage with reputable people attracts more high-net-worth investors, and these groups demand transparency." This means that the quality of these cannabis companies is rising. The sketchy pot stocks are no longer being tolerated by investors.
Other companies lining up to go public in the back half of 2018 include High Times Media, MJIC and Dixie Brands. High Times Media is probably the messiest of the bunch, which isn't to say it's a poor choice, it just isn't as neat and clean as the others.
Palliatech is another name that has been bounced around as a potential 2018 IPO, but there has been little information to confirm this.
High Times Media
Once upon a time, High Times was a relatively successful magazine. It earned millions of dollars a year from its event the Cannabis Cup, which saved the magazine from extinction.
However, the company loaded up on debt in a buyout from its original owners. Then, High Times looked to Origo Acquisition Corp. as a way to go public and list on the Nasdaq. That deal has not been terminated, but it hasn't moved forward in a timely manner.
In the middle of the Origo deal talks, High Times decided to do a crowdfunding campaign to raise money ahead of its eventual public listing, thus confusing investors. The interest has been strong and while the company can't comment, it does sound like it has been more successful than anticipated.
Smaller retail investors may be attracted to High Times because of its unconventional approach to listing. (Remember Google's Dutch auction IPO?)
With High Times, smaller retail investors may feel like they are actually getting in early for a change. This offering is also expected in the fall.
MJIC is planning for an IPO sometime in the third quarter. This self-described "omnichannel" cannabis company plans to use the funds for its expansion in California, as well as for future mergers and acquisitions.
MJIC offers a variety of services, like accounting, compliance and e-commerce. CEO Sturges Karban said that MJIC plans to raise at least $20 million in the offering, which is much smaller than some of these other behemoths.
This company has been talking about an IPO for some time, but now it seems as if the planning has begun in earnest over the last couple of months. In addition to creating a distribution channel, MJIC also owns MJIC News and online paraphernalia store RollingPaperDepot.com. E-commerce could be the big winner for this stock.
Dixie Brands is probably the best known name among cannabis companies that haven't gone public yet, as it was featured on 60 Minutes back in 2013. (In cannabis-company years, that's like a decade ago.)
While the company was first to market, it wasn't able to capitalize on its brand name, and several top executives left the company. Co-founder Tripp Keber stepped down from the CEO position last year, and the other co-founder Chuck Smith has taken on the CEO role.
Dixie expects to generate approximately $20 million in revenue this year, and estimates that it will more than double that figure to $50 million by next year. In speaking with Bloomberg, Smith said that IPO proceeds would go toward future brand acquisitions. "We need access to capital. We need liquidity because this growth is very expensive," he said. "We're going to continue to acquire brands or innovate them."
This IPO is expected either at the end of this year or early 2019. The company recently closed on a $4 million financing round in April.
Investors do have concerns about entry levels for these newly traded IPOs.
For example, many traders complain about high valuations on these stocks. For instance, TGOD's market capitalization is over $1 billion, which isn't too shabby when you consider that it hasn't reported any revenue. So, the market has to correct itself, right?
"I think there are a lot of investors jumping on the bandwagon," said Wilson, the market watcher with Budding Equity Asset Management. "It's going to be lumpy with regards to trading levels. Legal recreational sales in Canada [starting in October] will help push revenues higher, but availability is only in a handful of stores. This will constrain the supply."
Wilson noted that when companies begin legal Canadian recreational sales, revenues could be lower than expected due to the limitations of the Canadian market. "Investors will get ahead, but then [sales] won't meet expectations and [cannabis stocks will] sell off."