On Wednesday, Bright Green (NASDAQ: BGXX) was briefly the most valuable cannabis company in America after its IPO on Tuesday. The stock rose from its direct reference price of $8 to a stock price of over $50 per share, giving the company a stupefying valuation of over $8 billion. Even after plunging today, the company still sports a $2.5 billion valuation.
This valuation is of course absurd because Bright Green has no revenue. But what Bright Green does possess might be more valuable than all the revenue and cash flow of any leading US cannabis company: a NASDAQ listing. Bright Green obtained a DEA contract to produce medical cannabis, which allows it to legally sell cannabis to research institutions, thus making it Federally legal, and allowing it to trade on the NASDAQ.
Remember if you touch the cannabis plant, not only do you not have access to the Federal banking system, but you also cannot trade on a US exchange and are relegated to secondary or tertiary Canadian exchanges or over the counter exchanges. And many prime brokerages and custodians will not allow you to buy, much less hold a plant touching cannabis stock.
Watching a pre-revenue company soar during an tough bear market is surprising, but it is even more absurd understanding that the company still needs to spend $300 million to fully build out its facility! Glass House Brands (OTC: GLASF) is on track to hit a revenue run rate of $200 million this year and has a state-of-the-art greenhouse operational in the perfect climate for growing cannabis and its market cap is less than $250 million! But Glass House doesn’t have a NASDAQ listing, it trades over the counter and on the Canadian NEO Exchange.
And neither does Verano (OTC: VRNOF), Green Thumb (OTC: GTBIF), Curaleaf (OTC: CURLF), or any other leading cannabis company. The absurdity of watching the best US cannabis companies fall 50-70% over the last year and hit all-time lows at the same time a pre-revenue company IPOs and then soars, while doing more trading volume in one day than all the US cannabis stocks sure was something to behold. And then to see its valuation exceed Verano’s, which earned over $300 million in EBITDA last year and should do at least $400 million this year was special.
Of course, like most ridiculously hyped IPOs, Bright Green is already returning to earth. That’s not the point of this post. Instead, I want to shine a bright green light on what a NASDAQ or NYSE listing will do for US cannabis stocks. There is a lot of pessimism in cannabis right now, but the thesis remains that one day these stocks will trade on US exchanges and when they do, the price action should be amazing.
There is no reason I can ascertain why Verano should be trading at less than 6 times my estimate of EBITDA for this year or that MariMed (OTC: MRMD) trades at an even more remarkable 5 times trailing EBITDA, other than most of the investing world cannot buy or invest in these companies.
The more I think about the stock price action, the more I appreciate the fact that most US cannabis stocks trade as if they were private companies with weird trading stubs. And that one day, when they can trade on US exchanges, we may see truly eye-popping, IPO-like moves. If investors and speculators will go crazy for a pre-revenue company, what will they do for real strong companies that are growing fast and profitable like Verano and MariMed?
But when will that day come? Well, it might come through the passage of SAFE, which legally shields financial institutions from prosecution or fines from the government for working with state legal cannabis companies. There is some thought that if SAFE passes, that FINCEN and other regulators could give the exchanges the green light. I’m not sure, but I do know that shielding financial institutions would allow a lot more investors to enter the space and should solve the custody issues that cause so many investment banks to prohibit investing in cannabis. It would also allow credit cards in dispensaries. And the debt side should become much, much easier, and less costly for plant touching cannabis companies.
SAFE is being considered to be included in the America Competes Bill, and if it isn’t included, I think it has another strong chance in the lame duck session of Congress after midterm elections. I wrote a detailed post about the SAFE Window. I think the odds are good that SAFE will pass this year.
And if it passes, battered cannabis investors might just get their Bright Green moment. In two days, a pre-revenue company soared as much as 500% on millions of shares traded, giving us a pretty good idea of what might happen to all our beleaguered cannabis stocks if they too could trade on the NASDAQ.