Two Marijuana IPOs to Watch After Canada Marijuana Legalization…

Marijuana IPOs to Consider Post-Legalization

A lot of digital ink has been spent on marijuana legalization—and with good reason.

Cannabis is among the fastest-growing industries in the world, with new stocks popping up almost every week. To take advantage of this mega-trend, we’re looking at two upcoming IPOs: Tilray IPO and High Times IPO.

Both firms are already active. However, they’re looking to raise additional funds from investors now that Canadian marijuana legalization is official. And that’s where you come in.

Tilray, Inc. and High Times Holding Co. are planning to IPO in the back half of 2018. Each presents a unique opportunity for investors, given that they’re coming online after the Canadian government legalizes marijuana. “After” is the operative word here.

Most firms already went public in Wave 1 and Wave 2 (I’ll explain those below). This means IPO watchdogs are starved for something new, and that hunger makes them likely to bid up prices on new issuances.

Also, the market is bullish on marijuana stocks. It has been ever since the Liberal Party promised legalization during the 2015 election, which means that Tilray and High Times are entering friendly territory.

“We will legalize, regulate, and restrict access to marijuana,” the Liberal Party said when it was running for control of Canada’s government.

It also said that, “Canada’s current system of marijuana prohibition does not work,” and that “too many Canadians end up with criminal records for possessing small amounts of the drug.” (Source: “We will legalize, regulate, and restrict access to marijuana,” Liberal Party of Canada, last accessed June 26, 2018.)

Three Waves of Marijuana IPOs

It was strong language. A firm promise. So when Liberals won the election—capturing a large majority in the House of Commons—fast-moving entrepreneurs launched their marijuana IPOs within months. I called this Wave 1.

Wave 1 includes companies like Canopy Growth Corp (NYSE:CGC) and Aurora Cannabis Inc (OTCMKTS:ACBFF, TSE:ACB). These tend to be well-established behemoths in the Canadian marijuana space, capable of producing on a mass scale.

A second wave arrived months later when Prime Minister Justin Trudeau moved marijuana up the legislative agenda. I call this, predictably, Wave 2.

You’ll find names like Cronos Group Inc (NASDAQ:CRON) and Hydropothecary Corp (OTCMKTS:HYYDF, CVE:THCX) in this grouping. Both are second-generation startups that found interesting ways to stand out from the pack.

By this time, marijuana IPOs had floated into the foreground of capital markets. Some of them had gained 200% to 300%, making them impossible to ignore.

Now a small group of marijuana stocks, comprising Wave 3, is looking enter the stock market. Tilray and High Times are the ones we’re interested in.

Even without putting all their eggs in one basket, investors were able to double their investment. Just look at the Horizons Medical Marijuana Life Sciences ETF (OTCMKTS:HMLSF, TSE:HMMJ)—it is up almost 120% from last June.

Chart courtesy of StockCharts.com

Why Now?

Clearly, or at least it’s clear to me, Tilray and High Times were waiting to see if Canada would follow through on its marijuana legalization promise. It did.

Bill C-45, as it was called, passed the House of Commons with a 205-to-82 majority on June 18, 2018.

It then got by the Senate, which was considered the only real obstacle to its passage. And then finally, it will become enforceable law on October 17. (Source: “Vote #868 on June 18th, 2018,” Open Parliament, June 18, 2018.)

That’s one reason in favor of a Tilray IPO. The company already produces medical marijuana, but if it’s being forced into a recreational market, then it needs to operate at scale. Cash is an essential step toward that goal.

Besides which, Tilray and High Times will raise their profile by going public, and that could inspire takeover attempts from bigger rivals. We’ve already seen a record amount of deals this year, so it’s not a stretch to imagine that each company dreams of being acquired.

But now on to more substantial matters. Here are three facts you should know about each IPO.

Tilray IPO: 3 Facts to Know

Scale is the first thing you should know about. Namely, that Tilray wants to raise $100.0 million from its IPO. I feel this is a healthy amount of cash since it’s big enough to make a splash but small enough to tempt Aurora into acquisition talks.

The second fact is why Tilray is going public.

According to the Tilray S-1 filing, it’s because the company wants to “fund the build out of cultivation and processing capacity at our Enniskillen, Ontario, London, Ontario, and Cantanhede, Portugal facilities.” (Source: “Tilray, Inc. S-1 Filing,” U.S. Securities and Exchange Commission, last accessed June 26, 2018.)

Since these objectives are stated clearly in the “Use of Proceeds” section, you can be fairly confident that Tilray won’t blow your cash on random marketing campaigns or something silly like that. I like to see these specifics in an S-1 filing.

The last thing you should know: Tilray would trade on the Nasdaq stock exchange under the symbol “TLRY.”

High Times IPO: 3 Facts to Know

High Times is a publisher—that’s probably the first thing you should know.

It runs several magazines, including the 40-year-old High Times magazine and web sites that focus specifically on cannabis and cannabis-related content.

But what makes High Time truly special among marijuana stocks is an ability to target the U.S. marijuana market without violating U.S. federal law.

After all, High Times neither grows nor distributes “the plant.” It simply sells information to consumers and ad space to businesses. (Source: “High Times refreshes IPO plans as cannabis companies build buzz on Wall Street,” Reuters, June 19, 2018.)

A second fact: Before the High Times Nasdaq listing goes live, investors can purchase discounted shares as part of the company’s “pre-sale.” Each share costs $11.00, which is approximately 10% cheaper than the forecasted IPO price.

Interested investors will likely want to get their hands on this stock as soon as possible since it will only be available for a limited time. For more information on how to proceed, visit the High Times web site.

Lastly, High Times might enter the stock market through a reverse takeover of Origo Acquisition (OTCMKTS:OAQCF). In fact, this RTO was the original plan. But there was some confusion about whether or not Origo would be delisted from the Nasdaq, so High Times decided to raise some cash through its pre-sale while the fog cleared.

Origo has till September 12 to resolve its issues. If it fails, High Times will have to find a different route onto the market.

Analyst Take

We don’t have a specific High Times IPO date—or a Tilray IPO date, for that matter—but it’s safe to say they’ll happen near October 17, 2018. That is the official date for Canadian marijuana legalization.

As for my view on these marijuana IPOs, I think Tilray stock is an interesting acquisition play. Other than that, it seems unimpressive. High Times is more promising, however, given its relatively uncontested playing field in the marijuana space.

Keep an eye out for both these stocks.