It may seem odd that a company would create a new equity listing in another country, but this practice is actually very common. It is known as cross-listing (or dual-listing). Listing in multiple countries gives a company access to a new base of investors. Many investors already have the option to purchase shares of companies in other countries, but this leaves them exposed to currency risk in their portfolio. When a foreign company has a listing in the investor’s home country it is also most commonly in the investor’s currency.
The cannabis infrastructure company Helix TCS (OTC:HLIX) recently announced that they have applied to list their common stock on the Canadian Securities Exchange. The company already trades on the OTCQB exchange in the US.
Companies sell new shares as one source of capital to invest in growth. Recently, Helix acquired BioTrackTHC and most recently Tan’s International Security, all while working on other acquisitions at the same time. Making acquisitions to grow is an expensive process. It makes sense for a company like Helix to pursue multiple options for raising capital.
The company is explicit in the most recent quarterly financial statements that they expect to need additional financing to fund operations in 2019. The upfront cost of new acquisitions and runway to get to profitability in all those business lines means that the growth in revenue has not translated into increased cash flow yet.
Based on recent quarterly report, they raised $3m from financing activities just in the past 3 months. In addition to their outlays for acquisitions they also face a $12m current account deficit. Due to their growth through acquisitions, quarterly revenue has almost tripled since this time last year.
A dual-listing and secondary offering would still has the same dilutive effects to ownership as any other common stock offering. One upside is that selling shares to a new market would not negatively impact the price of existing shares to the same extent as additional new shares would in the same exchange the company is currently listed on. If a company consistently sold new shares into the same market, the extra supply would depress prices and each new round would raise less money. By offering shares into a new market of investors, they can more easily continue raising capital without running out of demand as quickly. It’s simple supply and demand. The company is going to where they believe more demand awaits them.
The growth and maturity of the cannabis market in Canada also makes it advantageous for issuers of equity. In the US, about 80% of stock value is held by institutional investors. This means it is especially important for companies to meet index listing requirements. Institutional investors and investment funds are more likely to be limited in the stocks they can own based on benchmark indexes.
Companies in controversial industries like cannabis will also find it harder to get interest from institutional investors who are concerned about exposing themselves to legally risky businesses. The rise of ESG (Environmental, Social, and Governance) investment strategies further limits the number of large investors that would buy into stocks of cannabis industry companies.
For a company like Helix, even though their business is located in the US, raising equity capital in Canada makes a lot of sense. The fully legal nature of cannabis in Canada means that more institutional investors can own shares in the company. There are also more investment products that own cannabis companies and track cannabis indices. Even if the Canadian market is never a major source of revenue for the firm, it can be a great place to go for capital.
Many of the existing Canadian cannabis indices and investment products are limited or altogether restricted from buying US listings of companies. Helix offering a dual listing on the Canadian exchange allows these investors to purchase shares that they could not do on the current US OTCQB listing.
Historically, it has been quite common for Canadian companies to have a dual listing in the US to gain access to the huge US equity market. Cannabis (at least until it is federally legal) may be a rare exception where it is more beneficial for US firms creating a second listing North of the border.
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