I decided to dive into the topic in more detail and create an FAQ:
What is an RTO?
A reverse takeover (RTO) is a 'backdoor' method of becoming a publicly listed company. A publicly listed shell company acquires all shares of a private operating company. The shareholders of the private company then exchange their shares for the public one.
Why go public via an RTO?
There are multiple benefits, including:
- RTOs minimize the execution risk of an IPO because the value is pre-determined and voted on by shareholders
- Lower cost (may not need to pay an underwriter)
- Typically faster than an IPO
- Lower regulatory review requirements / public scrutiny
- Green Thumb Industries (Cannabis CPG)
- Wikileaf (Seattle-based online cannabis directory)
- POSaBIT (maker of hardware for cannabis companies to process payments)
- MedMen (LA based retailer)
- Haborside (California-based retailer)
Why Canada?
Canada legalized marijuana on the federal level in 2018. As a result, Canadian banks are able to provide capital and there is little legal risk for companies based there.
What exchanges do they trade on?
Most cannabis companies are traded on one of three exchanges: TSX, CSE or TSXV. All cannabis companies with US operations trade on the CSE:
- CSE (Canadian Securities Exchange) - most common exchange for cannabis companies; has lower listing and reporting requirements than TSX and TSXV and will allow cannabis companies with US operations
- TSX (Toronto Stock Exchange) - Major exchange with strict listing rules, similar to the NYSE; will not allow cannabis companies that operate in a country where cannabis is illegal.
- TSXV (TSX Venture Exchange) - serves as a public venture marketplace for small cap companies (like the Nasdaq Capital Market or OTC markets in the US). Currently lists 40 cannabis companies, including Delta9
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