| In the immediate aftermath of Canopy Growth’s Oct. 25 announcement that the company intends to accelerate its plans to enter the U.S. market through a new holding company, Canopy USA, excitement ran rampant on the stock market. In just a couple short hours, Canopy’s share price increased 20% and continued to run into the next day, peaking at a 43% jump post-announcement.
In a follow-up conversation with my colleague, I questioned how Canopy would legally maintain its U.S. listing on the Nasdaq Stock Market after entering the federally illegal U.S. marketplace. I wasn’t the only one asking that question, especially with implications of a possible loophole for current U.S.-based operators to somehow reverse engineer their company financials out of the country while creating a new holding company for exchangeable share purposes here at home.
But the day after the announcement, Oct. 26, it became clear that Canopy’s Nasdaq listing could be in jeopardy upon closing acquisitions of Wana Brands, Jetty Extracts or the fixed shares of multistate operator Acreage Holdings: Nasdaq objected to Canopy consolidating the financial results of Canopy USA in the event of those transactions, according to a Securities and Exchange Commission (SEC) filing by Canopy.
“Nasdaq has proposed that such consolidation is impermissible under Nasdaq’s general policies,” the filing states. “The company intends to comply with the SEC’s guidance on the application of U.S. GAAP for financial reporting purposes. The company disagrees with Nasdaq’s potential application of its general policies as the basis for its objection since it contradicts the company’s financial reporting requirements under U.S. GAAP including its application to THC plant touching businesses.”
Canopy officials stated there is no assurance that Nasdaq will harmonize its general policies with the SEC accounting guidance.
“As such, there can be no assurance that we will remain listed on the stock exchanges we are currently listed on, which could have a material adverse effect on our business, financial condition and results of operations,” the filing states. “In the event of a delisting from a stock exchange, there is no assurance that we will be able to satisfy the conditions required to list on an alternative stock exchange.”
Just the previous day, Canopy CEO David Klein said that his company plans to unleash the full power of its scalable and “ideally positioned” U.S. cannabis ecosystem to unlock a “once-in-a-generation opportunity.” But cannabis’ continued Schedule I listing under the Controlled Substances Act is what could stand in the way of realizing the full benefits of participating in the world’s largest market.
-Tony Lange, Associate Editor | 