Canopy Growth Corp Faces Obstacles in Maintaining Dual Listing
Canopy Growth Corp. is facing challenges as it seeks to maintain its dual listing on the Nasdaq and the Toronto Stock Exchange. The company's plan to establish Canopy USA, a subsidiary to hold potential ownership positions in U.S. cannabis businesses, has hit a snag with the Securities and Exchange Commission (SEC).
Last week, the SEC expressed concerns in a letter to Canopy Growth Corp. about the "deconsolidation" of Canopy USA as part of the company's potential acquisition of Wana Brands, Jetty extracts, and cannabis company Acreage. Canopy Growth currently holds options to purchase these companies, which all operate in the U.S.
While a spokesperson for the SEC declined to comment, Canopy Growth confirmed that it is in discussions with the regulatory body. The company is exploring additional structural amendments that would address the SEC's concerns and enable the deconsolidation of Canopy USA.
During a recent analyst briefing on November 9th, Canopy Growth CEO David Klein acknowledged that there is more work to be done in achieving the deconsolidation of Canopy USA. However, he emphasized the company's commitment to its expansion plans, highlighting the impressive growth demonstrated by Wana Brands, Jetty, and Acreage.
Following this news, Canopy Growth Corp's stock fell by 2.3% on Thursday. The stock has experienced a significant decline of 77% in 2023, in contrast to the 50.8% drop witnessed by the Global X Cannabis ETF POTX.
It is worth noting that Canopy Growth Corp initially unveiled its strategy to expedite its entry into the U.S. market and establish Canopy USA over a year ago. However, the plans have faced scrutiny from both the SEC and the Nasdaq. The Nasdaq has objected to Canopy Growth consolidating the financial results of Canopy USA once it completes the acquisition of Wana Brands, Jetty, or fixed shares of Acreage.
Canopy Growth Faces Objections Regarding U.S. Operations
Canopy Growth, a leading cannabis company, is currently facing objections from the Nasdaq regarding its U.S. operations. The company believes that it is necessary to include its U.S. earnings in its financial reports to comply with U.S. Generally Accepted Accounting Principles.
One potential factor that could impact U.S. stock listings of cannabis companies is the potential re-scheduling of cannabis from a Schedule I substance to a Schedule III substance. This change in classification could have significant implications.
Due to the federal prohibition on cannabis, the New York Stock Exchange and the Nasdaq currently do not permit stock listings from cannabis companies that are directly involved in the cultivation or distribution of the plant in the U.S. However, Canopy Growth is an exception to this rule as its operations are based in Canada.
Several U.S. cannabis companies have sought listings on the Toronto Stock Exchange and the Canadian Securities Exchange, which also allows trading on the OTC bulletin board for access by U.S. investors. Despite this, institutional investors in the U.S. have generally been cautious about investing in these stocks.
In light of challenges in the Canadian market, Canopy Growth has been focused on cost-cutting initiatives. The company issued a "going concern" warning earlier this year, indicating potential financial difficulties.
Overall, Canopy Growth's ability to navigate the regulatory landscape and manage its operations in both Canada and the U.S. will continue to be closely watched by investors and industry experts.
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- Canopy Growth cuts 1,200 jobs in past year and issues "going concern" warning as analyst eyes solvency of cannabis company
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