What is Uplisting? What Does it Mean for Cannabis Stocks?
You might be reading this and thinking, I’ve heard of IPO’s, but what is an UPLISTING?
And why is a stock getting uplisted so important?
And more specifically, what cannabis stocks have been uplisted already in the US?
And MOST IMPORTANTLY…which cannabis stocks are most likely to get uplisted in the near future in the US?
First, uplisting isn’t something that most investors are familiar with. But it’s fairly simple to explain. As stocks get bigger and more successful, they can move up the stock market food chain. Many small companies start in what’s called the OTC or Over-The-Counter exchange. This exchange has very limited reporting requirements and accepts many “shitty stocks” and mostly penny stocks.
In contrast, when a stock either uplists or does an IPO to a better, larger exchange (like the NYSE or NASDAQ) it has more reporting requirements, but it also gets better investors.
The reason is because most institutional investors (aka “smart money”) don’t pay attention to OTC stocks, and there are very few OTC stocks that are uplisted each year.
Only 60 companies on average achieve an uplisting each year. Which represents just .0052% of the 10,000 stocks on the OTC exchange.
And of that list of 60 companies, appx 75% uplist directly to the NASDAQ stock exchange.
Uplisting, by its nature, is a rare occurrence. But uplisting or IPO’ing on a good stock exchange can lead to enormous returns for astute investors.
AND…
It’s usage has increased dramatically due to the strange rules + regulations of the cannabis industry.
Cannabis, as you all remember, is still federally illegal in the United States.
But hopefully the recent Biden win will be changing that. (Read our Biden thoughts here)
But for now, cannabis is still federally illegal. And that matters very, very much to the NASDAQ and NYSE.
Both of these stock exchanges take their cues from the federal government on what is legal/illegal and what should be allowed on their stock exchanges. They have specific requirements to get onto their exchanges, which most cannabis companies cannot meet yet. (See NASDAQ listing details here)
This is WHY we’ve seen mostly Canadian based cannabis stocks get uplisted in the US, and non-plant touching US based cannabis stocks get uplisted.
To date, NO plant-touching US based cannabis stocks have been uplisted or IPO’ed to either the NYSE or the NASDAQ.
It’s unfortunate, but not surprising. The NASDAQ and NYSE have reputations to uphold, and legal requirements to consider. They have way more at stake for themselves than allowing a few burgeoning cannabis stocks to uplist to satisfy cannabis investors desires.
While generally these exchanges haven’t allowed cannabis uplisting or cannabis IPO’s, there have been more and more over the past few years.
This Yahoo Finance list shows a little over 25 cannabis stocks that are currently traded on either the NYSE or the NASDAQ. Some of these companies uplisted, while others IPO’ed.
So now that you have some history on stock uplisting and cannabis IPO’s, let’s dive into a few recent cannabis examples…
- IIPR (Innovative Industrial Properties) — Dec 2016 NYSE IPO
- SNDL (Sundial Growers) — Aug 2019 NASDAQ IPO
- TLRY (Tilray) — July 2018 NASDAQ IPO
- CRON (Cronos Group) — Feb 2018 NASDAQ Uplisting
These 4 stocks all have been uplisted or IPO’ed in the past 4 years, but they’ve all had vastly different experiences.
For IIPR, their focus is exclusively on cannabis real estate. They are probably the only true REIT (Real-Estate Investment Trust) in the cannabis industry. They buy/own and leaseback property to cannabis businesses across the US.
They have a simple business model, and since they don’t touch the plant, they were allowed by the NYSE to join their exchange back in Dec 2016.
Their experience with uplisting, and their investors experience has been sustainable, promising, and profitable.
Since debuting at around $17 / share back in 2016, they’ve continued a strong march upward to their current share price of $151 / share.
An investment in IIPR pre-uplisting would’ve gotten you an astonishing 780% return!
But not all US cannabis IPOs are that successful…
Let’s look at Sundial now to see the bust potential of an IPO.
Sundial is a Canadian cannabis grower who went public back in August 2019 with an IPO on the NASDAQ.
On day 1 of trading, Sundial shares dropped 35%. To make matters worse, if you bought 100 shares at the IPO price of $13 / share and held until today…
You’d have LOST appx 95% of the value of your shares! Sundial is currently trading at only $0.72 / share.
So not all cannabis IPOs in the US have gone well for investors.
Now let’s look at Tilray (TLRY) to see the boom and bust potential of a cannabis IPO.
Tilray is another Canadian cannabis grower, who went public on the NASDAQ in July 2018. This happened during one of the cannabis booms, so Tilray investors had quite the ride…
After going public at $17 / share, the stock rose to a record high of $300 per share only a few months later!
If you had sold then…great job! If you held, well you’re STRUGGLING now.
At the time of this writing, Tilray is trading at $8.70 / share. About 50% off of it’s initial price, and appx 97% off it’s all-time high price!
Tilray fell because it’s uplisting wasn’t connected to actual revenues and profits. Basically, they got uplisted so their stock would artificially rise, and then once investors learned the real truth…the stock plummeted.
The last stock I mentioned, Cronos, has a slightly different story.
Cronos was uplisted to the NASDAQ in Feb 2018, around the $9 / share price. In the next year, it went all the way up to $22 / share! More than doubling for investors!
But, it fell quickly after that during the 2019 cannabis market swoon.
One year after that $22 price peak, the stock was trading BELOW it’s original $9 / share uplist price. All the gains of 2018 were handed back in 2019.
These are cautionary tales for investors that hopefully will illuminate some of the positives and negatives for investors with uplisting and IPO’s for cannabis companies in the US.
The next batch of uplisting and IPO’s should be actual cannabis operators in the US. Companies like Trulieve, Cresco, Green Thumb, and more. These companies are commonly referred to as MSO’s or Multi-State Operators.
We may need federal legalization first, but these companies would benefit greatly from the increased exposure of the NASDAQ and NYSE.
Investors should do their research, of course, but the era of cannabis stock uplisting, IPOs, and US federal legalization is approaching quickly.
Don’t miss out on these opportunities!
Thanks for reading, if you’re interested in our past blog posts about cannabis stock investing, please check out:
Joe Biden, The Cannabis Savior?
Why Cannabis Investing Makes Sense For Your Portfolio
And please check out our show, Investing in Cannabis , for awesome cannabis content, including founder + investor interviews, and more!
Originally published at http://investingincannabis.tv on December 11, 2020.
