Cannabis Sector Reverse Splits – The Good, The Bad, and The Ugly

Cannabis Sector Reverse Splits – The Good, The Bad, and The Ugly

In 2020, one of the most interesting themes of the cannabis sector was related to the number of reverse stock splits that were announced by large companies. The reason we found this interesting is because these cannabis operators were forced to conduct reverse stock splits in order to remain listed on a big board US stock exchange like the New York Stock Exchange (NYSE) or the Nasdaq.

So far this year, we have seen the reverse stock split trend continue and we expect to see more reverse splits that we did in 2020. Today, we want to highlight 5 cannabis companies that have either conducted a reverse stock split to uplist onto one of these big board stock exchanges or companies that have been forced to conduct a reverse stock split to remain listed on such exchanges.

Aurora: Conducts Reverse Split to Remain Listed on the NYSE

We believe that Aurora Cannabis (ACB.TO) (ACB) is the most high-profile company to conduct a reverse stock split in order to remain listed on the NYSE. Last year, the Canadian cannabis producer announced a 12 for 1 reverse stock split to bring the stock price well above the exchange’s minimum required price level.

Following the reverse stock split, Aurora Cannabis traded in a volatile pattern and this is a trend that we continue to closely follow. The company has reported a number of transformational developments following the reverse split and we will monitor how the changes supports the growth of the business over the long-term.

HEXO: Lowered the Size of the Planned Reverse Split

From a reverse stock split standpoint, HEXO Corporation (HEXO.TO) (HEXO) has followed a pattern that is similar to Aurora Cannabis. The reason we consider it to be similar and not the same as Aurora Cannabis is due to HEXO’s management team changing the structure of the reverse split prior to it taking effect.

In late December, HEXO completed a 4 for 1 reverse stock split and the trend has been less volatile when compared to Aurora Cannabis. A few weeks prior to the split taking effect, the management team reported to have changed the terms of the transaction from being an 8 for 1 reverse split to a 4 for 1 reverse split.

Prior to the stock splits taking effect, there were major differences between HEXO and Aurora Cannabis. From the number of shares outstanding to the strategic partners that are involved with the businesses, HEXO seems to be better positioned for long-term growth and we will monitor how the story advances from here.

Lexaria: Conducts Reverse Split to List on the Nasdaq

Earlier this week, Lexaria Bioscience Corp. (LEXX: Nasdaq) (LXX.CN) surprised the market and announced that it will conduct a 30 for 1 reverse stock split. The next day, Lexaria reported a major milestone and commenced trading on the Nasdaq Capital Market.

Unlike Aurora Cannabis and HEXO, Lexaria conducted a reverse stock split to trade above the $4 minimum price level that is required by the Nasdaq to list. When Lexaria announced that it would uplist to the Nasdaq, it also announced an underwritten public offering of approximately $9.6 million worth of units.

Going forward, Lexaria intends to use the net proceeds for research and development studies, patent and legal fees, and general working capital purposes. The company has strategic partnerships with two major tobacco companies, Altria (MO) and British America Tobacco (BTI). We consider these relationship to be significant for Lexaria over the long-term and will monitor how the market responds to the new listing.

FSD Pharma: A Nasdaq Up-Listing that has Gone Wrong

2020 was a strange year for the global economy as well as the cannabis sector. In January 2020, FSD Pharma (HUGE.CN) (HUGE: Nasdaq) announced that it was approved to commence trading on the Nasdaq and this was a development that we found to be surprising to say the least. Since inception, we have been cautious with FSD Pharma and believe that there are much mor attractive opportunities on the market.

A few months before FSD Pharma was approved to trade on the Nasdaq, the company announced a 201 for 1 reverse stock split. Although the reverse stock split played an important role in the up-listing, it also made the stock much less liquid. Since conducting the split, the trend has been to the downside and we will continue to monitor the opportunity from the sidelines.

Sundial Growers: Expect a Reverse Split in 2021

Sundial Growers Inc. (SNDL) is a Canadian cannabis company that we expect to follow the path of HEXO and Aurora Cannabis (from a reverse stock split standpoint). In August 2019, Sundial went public on the Nasdaq and the trend has been ugly since the first day of trading.

Last month, Sundial announced that it would transfer the listing of its stock to the Nasdaq Capital Market. This was done so the company could take advantage of the additional 180 calendar day compliance period that is offered on the Nasdaq Capital Market. This development extends the period that Sundial has to regain compliance with Nasdaq’s minimum bid price requirement. Like FSD Pharma, we remain very cautious with Sundial and will monitor how the story advances from the sidelines.


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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

Published at Fri, 15 Jan 2021 11:57:34 +0000

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