The benefits of being Public over Private in the cannabis spaceMelissa Sturgess
The question of whether a company should go public or remain private continues to be an ongoing debate throughout the financial markets. In the emerging cannabis industry, Ananda is one of three companies listed on London’s NEX Exchange with a current investing strategy focused on medical cannabis. There are a few reasons why Ananda believes it is better served by being a quoted company than a private one. Ananda has been quoted since mid-2018, and was one of the first companies of its type to list, giving us some experience and insight into this fast-moving arena. Below we outline three benefits Ananda has experienced through becoming a public company in an unknown market to the UK.
1. Legal framework
The procedure undertaken to become a listed company means that Boards and management teams must adhere to strict regulatory standards and are monitored closely by the Financial Conduct Authority (FCA). The regulatory framework can often be seen by companies as a deterrence, but the marijuana market makes for a different story. Cannabis is in its early stages and the thorough legal framework and corporate governance standards associated with listing incentivise us to remain transparent and open to market scrutiny, which creates a best practice mindset.
We believe that a listing has established important infrastructure and strong foundations for the Company’s future growth
2. Access to capital
The cannabis sector continues to be a rapidly developing market and we are in the early stages of attracting institutional investment to the space. Being listed on a stock exchange adds to the visibility of the company in the meantime and we believe we will be well placed in the future, once UK capital starts to flow more rapidly into the space. Institutional investors are watching carefully and the continued legalisation of the industry will enable the capital to follow. In the wake of the Europa Cannabis Conference, Crispin Blunt commented that he believed cannabis will be legal in the UK in the next five years. There have only been around 40 prescriptions made out for patients to receive medical cannabis so far. As we see medical cannabis clinics being opened and an increase in patient numbers, we expect the investment market and investor appetite to increase as well.
Looking further afield we have witnessed a fast maturing cannabis sector in the US and Canada. With 33 states in America being legal for medical cannabis and 11 being legal for adult use, that market has a much more advanced cannabis investing mindset that the UK. Canada went fully legal for adult use in late 2018 and so it has also seen a strong interest from the investing community. The UK’s medical cannabis market is forecast to be worth £8.8bn by 2028 and thus we believe we are at the just start of the cannabis investment cycle in this country.
3. Benefits of the NEX Exchange
Ananda is a pure-play London listed company, the second to list on the NEX. Current legislation and regulation prevent large and already established American companies from dual-listing as they mostly have exposure to the adult use sector, still illegal in the UK. UK exchanges have stated publicly they are open for business to the cannabis sector.
With that backdrop we are one of the pioneer companies in the UK quoted space. The significant legal protocols and listing requirements can often be a deterrent to new companies wanting to list, especially if they are without the resources or bandwidth. If a business does not have the necessary internal corporate and scientific skills in place, the listing process and dealing with changing market demands and trends can prove very time consuming. As with any new market segment there are the front runners and the secondary movers. We expect to see more cannabis listed companies coming on stream as understanding of the sector increases along with the number of medical cannabis patients.
Ananda had the benefit of listing as an investing company, before it had actually made any investments. This significantly simplified the process. We have been able to tick the regulatory and legal boxes as and when they arise and as investments happen. In a new and uncertain market this reduces our risk as we are able to ensure full legal compliance of every investment we make, before we make it. In addition, our senior management and CEO Melissa Sturgess have significant experience with quoted companies.
For a small and growing company listing can often be prohibitively expensive, especially when listing in a new sector where there is market uncertainty. NEX has ensured an affordable cost structure and is now working on making its Exchange better known and more accessible to shareholders who like to trade online. We see the opportunity for NEX to become the primary choice for cannabis listed companies going forward.
To conclude, as with all business decisions, it depends on the nature and the future direction the management wants to take the company. At Ananda, we feel that by being a UK-based listed company we are able to operate at levels of governance and transparency that is beneficial for both the company and for investors who are interested in exposure to this very exciting nascent sector.