The U.S. cannabis retailer and producer Curaleaf began trading in Canada on Monday, bringing with it a mammoth $4.5 billion valuation, a big store fleet and the backing of two investors who were early players in Russia's economy following the Soviet Union's collapse.
Meanwhile, another company is headed in the opposite direction. India Globalization Capital IGC, which has a medical marijuana business and had plans to enter the CBD drinks market, will be delisted from the New York Stock Exchange.
Shares of IGC were halted before the market opened, NYSE said it will suspend trading immediately as it begins delisting procedures. NYSE said IGC had "substantially discontinued the business that it conducted at the time it was listed or admitted to trading, and has become engaged in ventures or promotions which have not developed to a commercial stage or the success of which is problematical."
Curaleaf: Biggest U.S. Cannabis Chain?
The Wakefield, Mass.-based company began trading on the Canadian Securities Exchange, which has become an express lane for U.S. marijuana companies looking to raise money and draw shareholders. The company will trade under the ticker "CURA."
Curaleaf also raised $400 million in a private placement, well above earlier plans to raise $150 million. The placement was led by Canaccord and GMP Securities.
Curaleaf owns or runs 28 dispensaries, 12 cultivation sites and nine processing facilities across 12 U.S. states. The store count potentially makes it the biggest marijuana retailer in the U.S.
"With 28 stores all under the 'Curaleaf' banner, to our knowledge CURA has both the largest dispensary chain in the U.S., and the footprint with the most common-branded stores," GMP Securities analyst Robert Fagan wrote in a research note.
"Hence, we view the 'Curaleaf' brand as having the highest visibility at the national level among peers, which should support market share," he continued.
And the company looks to get even bigger.
"We remain committed to growing our business through aggressive organic growth and the strategic deployment of capital into accretive acquisitions that extend our brand into the most attractive U.S. markets," CEO Joseph Lusardi said in a statement.
Curaleaf went public via a reverse takeover. In a reverse takeover, a private company goes public by merging with an already-existing, public company. That public company is often a shell with little or no operations.
Curaleaf's $4.5 billion price tag is the latest jaw-dropping figure to surface from an industry being pursued by big beverage companies and staked out by short-sellers, even as marijuana companies' sales range in the mere millions.
U.S. cannabis chain MedMen went public on the CSE in May with a $1.6 billion valuation. Acreage Holdings, the U.S. cannabis company backed by former House Speaker John Boehner, is reportedly seeking a valuation of up to $2.5 billion. In August, Constellation Brands STZ invested $4 billion in Canopy Growth. This month, MedMen and another company, iAnthus Capital, both announced separate acquisition deals worth more than $600 million.
A 'Repositioning' In Marijuana Stocks
Marijuana stocks reached nosebleed levels this summer and crashed after recreational legalization began in Canada. They continued to sell off Monday.
Curaleaf sank 27% on the Canadian Securities Exchange. Among U.S.-listed marijuana stocks, Canopy Growth CGC tumbled 14.55% in the stock market today, Cronos Group CRON lost 12.6%, Tilray TLRY fell 16%, and Aurora Cannabis ACB sold off 16%. Those companies all do business in Canada.
Curaleaf Executive Chairman Boris Jordan in an interview last week attributed the retreat in marijuana stocks, in part, to 'selling the news' and the broader market sell-off — a product of concerns about trade friction and higher borrowing costs. But he also said that a "repositioning" was occurring in marijuana stocks.
More cannabis investors, Jordan said, are pulling back from of the Canadian market. That market, he said, was overvalued and had limited growth potential due partly to Canada's population size.
"One, the U.S. market is bigger, so the growth potential's much more," he said. "Two, the stocks are a lot cheaper than the Canadian stocks. So I think that there is a relative repositioning taking place, because there are a lot of deals in the pipeline."
Illicit Dealers Weigh On Marijuana Stocks, Prices
Even as Curaleaf and those other companies try to buy their way into expansion and snap up state licenses, Jordan said it could take another three to five years before U.S. cannabis companies are big enough, and in enough places, to compete with one another directly. The company sees the illicit market — be it street dealers or more sophisticated online shops — as the more immediate competition.
"We see the street as our competition," he said. He later added: "That's why our whole strategy is based on pricing our products right down to the street level."
Early research shows that steep markups at California dispensaries, along with high taxes and regulations, have kept some customers buying from a sophisticated illegal market that could be difficult to uproot. Jordan said selling at a price that competes with unlicensed sellers was still enough to shore up profits.
Still, profits have been scarce for marijuana businesses as they eat through cash to expand. Curaleaf put up $23.7 million in sales for the first half of this year. That's already more than what it pulled in last year. But it reported a net loss of $9.8 million over the first half of 2018.
The company declined to comment on when its sales might reach into billion-dollar ranges of its valuation, saying it doesn't provide projections.
Curaleaf's Russian Roots
Jordan is an American with Russian ancestry who helped Russia with some of its first post-communist privatization efforts. Andrei Blokh, the former chief of one of Russia's largest milk companies, also owns a big chunk of Curaleaf's shares.
"This industry and Russia in the early '90s have a lot of similarities," Jordan told IBD. "There were high barriers to entry; there was opaque regulation. There was no capital available."
Jordan was born in New York. He is the founder of Sputnik Capital, a private equity and advisory group. He also co-founded Renaissance Capital Group, one of Russia's first international investment banks. Coming to Russia in the early 1990s, he helped privatize Russian government property and lay the groundwork for its stock market. He also ran the Russian TV network NTV.
The reverse takeover deal also gives Andrei Blokh, the former chief of the Russian milk company Unimilk, 41.7% of the company's subordinate voting shares, according to a regulatory disclosure last month. Those shares carry less voting power than Curaleaf's multiple voting shares. Unimilk merged with French dairy giant Danone in 2010.