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Many investors are excited about the prospects for cannabis companies to profit from the growing trend toward legalized marijuana. Yet for U.S. investors who prefer to buy stocks that trade on major exchanges like the New York Stock Exchange or the Nasdaq Stock Market, the pickings are pretty slim, with just a handful of companies having chosen to list their shares.
In order to capitalize on investor interest, Aurora Cannabis (NASDAQOTH:ACBFF) (TSX:ACB) recently said that it plans to join the elite group of marijuana stocks trading on major U.S. exchanges. While some are talking about Auroras plans to list its shares on the New York Stock Exchange in the same way theyd refer to an IPO, the Canadian marijuana growers move differs fundamentally from a true initial public offering. As a result, investors expecting the sort of response that an IPO typically gets could be disappointed.
On Oct. 9, Aurora Cannabis announced that it had filed an application with the NYSE to list its common shares on the exchange. Aurora said that it expects the process to be relatively smooth, anticipating it will be able to get all required approvals from various regulators before the end of October. In particular, Aurora had to file an extensive disclosure with the U.S. Securities and Exchange Commission on Form 40-F, which is similar to the 10-K annual reports that U.S. companies must file with the SEC every year.
Aurora plans to move through the NYSEs formal listing process quickly and then announce a specific date on which its shares will start trading on the exchange. At that point, the marijuana company will remove its shares from the U.S. over-the-counter market on which they currently trade.
For the company, trading on Wall Street is a rite of passage. “Through our NYSE listing,” CEO Terry Booth said, “Aurora joins an established group of mature global brands with improved access and exposure to an engaged international institutional investor audience.”
Yet some U.S. investors are confused about exactly what Aurora Cannabis is doing and what impact it could have on the stocks price movements. For instance, when Tilray (NASDAQ:TLRY) did its IPO back in July, the marijuana stock quickly soared from its offering price of $17 per share to close more than 30% higher on its first day of trading. Many cannabis investors hope for a similar surge when Aurora joins the NYSE.
However, its important to understand several distinctions between what Aurora is doing and a true IPO:
Theoretically, that means that there shouldnt be a big price move on Auroras first day on the NYSE — especially given that institutional investors can freely and easily buy shares in either the U.S. or Canada.
Yet past experience shows that the theory of how U.S. listings of marijuana stocks work doesnt necessarily match up with what actually happens. When Canopy Growth (NYSE:CGC) first listed its shares on the NYSE back in May, it initially climbed in premarket trading, only to give up ground and fall lower by 6% on the day. Things were even more volatile for Cronos Group (NASDAQ:CRON), which saw an initial 10% jump before losing ground and finishing the day down roughly 2%.
U.S. listings have proven to cause only short-term disruptions in trading activity. Both Cronos and Canopy went on to trade in line with other stocks in the cannabis industry more broadly, seeing interest early in 2018 that waned briefly before reappearing in the past few months.
Aurora Cannabis NYSE listing will make it far easier for cannabis investors in the U.S. to buy shares of the up-and-coming marijuana company. However, shareholders shouldnt expect the sort of post-IPO gains that Tilray produced, because Auroras move isnt a true initial public offering. The biggest impact of the listing will be to give Aurora a lot more exposure south of the border, and that could translate into both business success and rising stock prices if marijuanas popularity keeps climbing.
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.