If you’re a Cannabis company looking to go public – all hope is not lost. Just because Cannabis is a big question mark, on a federal level, in the USA – doesn’t mean you can’t go public. Many cannabis companies are public in the USA thanks to reverse mergers.
Cannabis companies that touch the plant, can go public in the Canadian stock exchange. Many companies that directly touch the plant and grow it, have taken advantage of the Canadian stock exchange and gone public through reverse mergers. They’ve raised billions of dollars and seen stock prices drastically increase month after month.
If you’re a cannabis company that doesn’t touch the plant – it’s possible to go public in the USA. Numerous companies have gone public in last few years. For example, here’s a great article by The Motley Fool, talking about a company called Kushbottles that went public. There’s always a risk the federal government could come in, and virtually wipe out Cannabis companies that are public – but it’s highly unlikely. It’s more probable that Cannabis companies that don’t touch the plant, will continue to go public.
If you’re a Cannabis company that wishes to go public – Delancey Street can help. Our team of experts can help you with everything related to the going public process. This article will briefly touch upon what a reverse merger shell is, and how this is crucial for a reverse merger to go.
A reverse merger is the quickest way for a Cannabis company to take their company public. A shell company is a public company that is non-functional although it still does things like filing their periodic reports as per the Securities Exchange Act of 1934 commonly known as the ‘34 Act’.
Why do reverse merger shells exist?
i. Failed startup companies
When a public company commences its operations and fails, it may end up becoming a public shell company. Such businesses have business models that failed to live up to their expectations and folded. Companies of this category are known to have had limited company history and their assets are insignificant.
ii. Out of business
When a public company runs out of business because demand for its products or services has gone down, it can end up being a public shell company. This kind of shell companies is common. Often, the management will auction the companies assets but retain its company name/corporation. The company usually does this because they know the corporation can later be used as a reverse merger shell later on. Most of the shells that fall into this category are known to have a strong business history and significant assets in the past.
iii. As a ‘Blank Check Company’
Some entrepreneurs may decide to form and register a company with the sole purpose of selling it as a shell company. Such companies have no known business history and no assets under their name under Act 34.
Why you should consider going public through a reverse shell merger
Are you a shareholder in a private company that plans to go public? Are you confused whether a reverse merger is a good option? Below is a list of reasons why you should consider a reverse shell merger.
• Reverse shell mergers are a quick method of taking your private company public. When all the legal requirements of a public shell are in order, the process of a reverse shell merger can be smooth and quick.
• It allows the creation of a strong shareholder base. Any company needs to have a shareholder base to ensure that they are actively trading and improving the liquidity of its stocks. When the number of shareholders increases, the trading in the stock of the company becomes more active. This will help increase liquidity, market cap, and overall interest in the company. Bottom line, companies go public because they want to get more funding and a greater capability of raising capital. A reverse shell merger will ensure that your private company retains the shell’s trading symbol. This makes it easy to attract new investors and get permission for secondary trading. There are many benefits that come with a company being public. A reverse shell merger allows a private company to become public and enjoy all the benefits of being a publicly listed company. Some of the benefits include using stock option plans in enticing, attracting, and retaining employees, using stock to trade and make acquisitions, and getting access to capital investors and capital markets. For example, Kushbottles did numerous acquisitions after going public, and in almost EVERY transaction – they gave stock + cash when buying out the company. By being able to issue stocks, it gives you greater leverage when trying to buy out companies. Instead of having to give cash, which weakens you, you’re able to give stock which allows you to keep your cash on hand for other expenses. This is a powerful feature of being a publicly traded company.
• A guaranteed way of a private company going public: When using the traditional IPO process, you are not guaranteed of the outcome. Managers of private companies have to go through a tedious process of planning the IPO process without knowing whether it will succeed. If the financial conditions in the stock market seem unfavorable to the private company’s proposed offering, the whole deal can crumble. This leads to waste of resources and energy. A reverse shell merger, on the other hand, has a guaranteed outcome.
If you’re a Cannabis company and looking to go public, let’s chat. Delancey Street handles the entire process, ranging from legal and financial advisement, to securing the public shell, and facilitating the entire process. We can help advise you on how to best accomplish your business objectives through our creative solutions.