Going Public or Staying Private? A Hard Look at the Hard Questions
At the Marijuana Investor Summit in Denver on April 21, 2015, representatives from five publicly traded cannabis businesses gathered to discuss the state of the cannabis industry from a public company’s perspective. Alan Hawkins, Executive Director of the Association of Responsible Cannabis Public Companies, moderated the panel.
Meet the Panelists
Derek Peterson, CEO of Terra Tech (OTCQB: TRTC), is a strong proponent of both medical and recreational cannabis. Terra Tech, a California-based company, designs, develops and markets environmentally friendly agricultural equipment; however, it was recently awarded eight medical marijuana business licenses in Nevada and has plans to apply for a license in New York.
Peterson prides his business on being socially responsible, not only for Terra Tech’s shareholders, but in gaining profitability, building the business and minimizing environmental impact as well. He hopes to help make an impression in the industry by helping to build it out. “We want to play some semblance of a role in the environment to push legalization,” Peterson said.
Tae Darnell, Vice President and General Counsel for Surna, Inc. (OTCQB: SRNA), is a realist who understands the uncertainty, yet profitability, of the cannabis market. “As a public company, we have an exceptional responsibility. There are exceptional challenges, real challenges [in the cannabis industry],” Darnell said. Surna develops innovative technology and manufactures products to address the energy and resource intensive nature of indoor cannabis cultivation. Surna does not directly touch the plant.
Despite the challenges, the benefits of running a public company like Surna in this space are unprecedented. “This particular market provides an incredible catalyst for research and innovation technology. Cannabis is on a precipice of something significant,” Darnell said.
Trent Woloveck, Chief Operating Officer of American Cannabis Company, Inc. (OTCQB: AMMJ), understands the cannabis industry’s potential to succeed on a macro level. American Cannabis Company owns American Cannabis Consulting and The Trade Winds Inc., specializing in advisory and consulting services as well as cultivation technologies. Woloveck tells the audience that nearly a year ago he overheard one federal senator discuss the topic of legal cannabis and his peers would laugh at him. However, Woloveck indicated that recreational legalization is becoming a topic of serious discussion at the federal level. “[Legislative bodies] are having conversations at the federal level,” Woloveck said.
Spike Humer, author of “The 10 Day Turnaround” and Chairman of MediJane (OTC Pink: MJMD), a distributor of medical marijuana products, aligns himself with the notion that the marijuana industry is here to stay. He understands the impact that the cannabis sector has on many different areas of American life. Consumer tastes, needs and desires change but this industry is one for the long haul.
“It’s not just about products, it’s about social change,” Humer said. “This is something that’s not going backwards. I think we have the opportunity here because we’re at the forefront of systemic change. Not only are we the leaders in terms of what happens in business, but also to help shape society, what happens in technology and what happens in medicine,” he added.
Chris Walker, General Manager USA with Heliospectra (OTCQB: HLSPY), urged investors to thoroughly research companies that are legitimate and adding value to the industry. “Really look at companies that are adding value, real value,” Walker said. Heliospectra provides alternative LED lighting solutions and Walker believes the company has a deep responsibility to better the environment by reducing energy consumption.
When to Go Public
Appearing on NASDAQ can be a vital benchmark for some companies, but the majority of public cannabis companies currently trade on the OTC Markets because they are too small or young to meet exchange listing requirements. The SEC provides information on listing requirements.
Once your company has reviewed the listing requirements and thinks it is ready to consider entering the public market, know that entering it too soon can come with consequences—public market patience is a virtue. “It’s better to be slightly late than way too early. If you’re doing well and building your model well, then that value that is there today is only going to be magnified in the long run,” Peterson said.
There are advantages to going public, but owners often find it difficult to manage both the public and operational sides of a business, so taking time may be a wise choice. It also depends upon your goals. Whether you think it is “too soon” or “too late” to go public is entirely dependent on who you and your company are. The cannabis industry is here to stay. If you take extra time to build your team, your company may have a better chance of surviving. “I don’t see this industry shrinking. I don’t see the value of this industry shrinking; there’s no rush,” Darnell said.
“I don’t think Google went too late. I don’t think Apple went too late.There are a lot of parallels you can pull from other industries and tech is a huge one,” Walker said.
If you decide to take your company public, consider registering under the Securities Act or the Securities Exchange Act as a means of demonstrating that your company can successfully adhere to strict standards. This will help your investors make informed investment decisions.
Once You Go Public
It is not only about getting there, it is about staying there. Company value plays a key role in whether your business flourishes or goes extinct in the public market. Investors are not typically looking at stock value; rather, traditional metrics help determine company value. Building fundamentals to support valuation is a key factor in remaining on top in the public space.
It is imperative to build an investor base that sees your company adding value, generating revenue in the cannabis industry and creating trust with shareholders. To maintain that trust, public companies owe investors transparency, timeliness and audited financials. It is also important for public companies to be consistent, execute strategically and fulfill the company model.
Building and Maintaining Your Business Model
What differentiates the cannabis industry from other markets is that, as of right now, it remains highly fragmented. Therefore, many cannabis companies operate under a state-regulated model. Public cannabis companies take on a large responsibility in that owners must create the roadmap for this industry and represent it in a way that appeals to investors. Adaptability to an ever-changing marketplace is another key factor in determining your company’s success in the public space.
Over the next few years, best practices will surface and poor ones will fall to the wayside. “Nothing’s clean and easy in this industry,” Peterson said. “Right now, for us, I think a lot of the process is really focus internally on execution, focus internally on numbers. Don’t put out fluff news pieces. Don’t get involved in the [media] hype.”
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