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Following in the footsteps of its biggest Canadian competitor, Aurora Cannabis (NASDAQOTH: ACBFF) has officially filed to list its shares on the New York Stock Exchange (NYSE). The decision follows the listing of Canopy Growth's (NYSE: CGC) shares on the NYSE in May, and it will offer more investors an opportunity to participate in the fast-growing marijuana market. Read on to find out why Aurora Cannabis' decision to trade on a major U.S. stock exchange is important.
A little background
A $150 billion global market, marijuana sales are beginning to shift from black market transactions to transactions in government-regulated dispensaries and retail stores.
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Marijuana has been illegal in the U.S. federally since 1937, but individual states have slowly but surely been passing laws to create regulated medical marijuana markets since the 1990s and recreational marijuana marketplaces since 2012. Currently, 30 states have legalized medical marijuana use, and nine states have passed adult-use laws that allow for the production, distribution, and sale of marijuana.
However, because marijuana remains a Schedule I controlled substance federally, U.S. marijuana market participants' access to banking services and ability to claim tax deductions is limited. Those obstacles, along with an inability to transact business across state lines, has created a highly fragmented market. As a result, most U.S. marijuana companies trade on the thinly regulated over-the-counter market, rather than on a major market exchange like the NYSE.
The lack of investment options for investors on the major markets has been a problem for marijuana investors. They can accept the risk of buying and selling on the less-transparent over the counter market, or they turn to markets outside the U.S., such as Canada, where many marijuana companies have their primary listings. However, many investors can't choose either of those options. For instance, institutional investors often have mandates that prevent them from holding over-the-counter or foreign stocks in their portfolios.
More liquidity and more money
Owned by the Intercontinental Exchange (NYSE: ICE), the New York Stock Exchange is the largest stock market exchange in the world. Founded in 1792, the exchange has a long-standing reputation for executing transactions reliably, and for this reason, over 2,400 companies list their shares on it.
By comparison, the Toronto Stock Exchange (TSE), which has been home to most Canadian cannabis stocks, is much smaller. The total market capitalization of all the stocks listed on the NYSE is over $23 trillion, but the combined market cap of all stocks listed on the TSE is about $3 trillion. The NYSE's long history and size advantage makes it the gold standard of exchanges, so it's trusted by market participants worldwide.