Part of cannabis and investing
The anticipated rush of listings by U.S. cannabis companies has ignited a rivalry between two of Canada’s smaller stock markets as they vie to fill the void created by the Toronto Stock Exchange.
The TMX Group – which owns both the Toronto Stock Exchange and TSX Venture Exchange – has a policy preventing listed companies from operating south of the border, where marijuana remains federally illegal despite having been legalized in more than 30 states.
That’s made the Canadian Securities Exchange, a stock market for upstart companies, the go-to venue for U.S. cannabis companies looking to go public, bolstering both the exchange’s public profile and its listing and trading revenues.
But now, the NEO Exchange has stepped into the fray, eager to grab a slice of what its president and chief executive calls a growing market.
“I can see a lot of potential new entrants emerging in the U.S. and I think that the Canadian marketplace is very well positioned to service them,” said Jos Schmitt, who heads up the NEO Exchange, based in Toronto. When it launched in 2015, it billed itself as a more fair alternative to the TSX because of its use of speed bumps to slow down algorithmic high-frequency trading.
There are 125 marijuana companies listed on the CSE, according to the exchange’s website. The NEO Exchange is home to five cannabis companies, three of which are special-purpose acquisition corporations, vehicles created for the purpose of doing takeovers.
“We have the advantage of being where the peer group is located,” said Richard Carleton, CEO of the Canadian Securities Exchange. And the CSE is continuing to court cannabis listings, with Mr. Carleton and his team making frequent trips to both the United States and Europe to meet with companies and their early investors.
The NEO Exchange, meanwhile, is positioning itself as the more senior alternative to the CSE, touting better access to institutional investors and the ability to purchase stocks on margin among its perks.
“Those companies that list on a senior exchange need to comply with a different set of standards,” Mr. Schmitt said, citing financial controls, company governance and reporting standards as examples.
“It gives you a substantial reduction in risk ... we have more than once heard from institutional investors that they will not invest in companies that are listed on a venture exchange.”
Halo Labs inc., a Toronto-based cannabis extraction company with plans to expand into California and Nevada, opted for the NEO Exchange when it went public last fall.
Halo’s CEO Kiran Sidhu said, initially, he faced a lot of resistance from investors, particularly retail ones, over his decision to list on the NEO as opposed to the more familiar CSE.
The NEO exchange is a newer marketplace and some investors at first didn’t know how to find a quote for Halo, Mr. Sidhu said.
But the issue has since been resolved, he said.
Now, the primary objection he occasionally hears from investors relates to the speed bumps that the NEO has built in to its platform in order prevent high-frequency traders from profiting off of the speed advantage offered by their lightning-fast computers.
Mr. Sidhu recalls speaking to one trader at a hedge fund who said he likely won’t be investing in Halo because the NEO Exchange won’t allow program trading.
“From my perspective that’s great,” Mr. Sidhu said.
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