In another sign of how big a business marijuana has become, Chicago-based Green Thumb Industries is going public. Shares in the cannabis company will be traded via a reverse-takeover of a shell company that is listed in Canada.
GTI is the second U.S. company with a license to grow and distribute marijuana that has announced plans to go public in Canada; Los Angeles-based MedMen has announced a similar deal. Acreage Holdings, a private-equity firm focused on cannabis investments, also is widely expected to go public in Canada; it drew headlines by attracting former U.S. House Speaker John Boehner and former Massachusetts Gov. William Weld to its board.
Doing a reverse takeover of an existing public company speeds up the process. If GTI's deal is approved, it could be trading on the Toronto-based Canadian Securities Exchange as early as next month.
The move signals how fast GTI and the marijuana business are growing as more states legalize use. In January, California legalized recreational use, followed by Massachusetts in July. Altogether, cannabis is legal for recreational use in 12 states and for medical purposes in 19 more.
GTI, which launched in 2014, now has licenses in six states and more than 300 employees, including about 50 in Chicago. The company has hired 125 people so far this year and expects total headcount to top 500 by year-end, said CEO Pete Kadens. GTI has licenses in Illinois, Massachusetts, Nevada, Pennsylvania, Maryland and Florida. It operates 12 dispensaries and will have 20 by year-end. It wants to grow further. "We need access to capital markets," Kadens said.
It would be the first IPO for a Chicago company since last year, when Byline Bank and Cars.com went public. The public markets are heating up again, with IPOs up 50 percent in the first quarter from a year earlier, according to FactSet.
Technically, marijuana remains an illegal drug, although the fe
deral government has allowed individual states to legalize it. It's been an uneasy truce at best. U.S. Attorney General Jeff Sessions is opposed to legalization and has threatened enforcement. Because of the federal law, banks and large institutional investors that otherwise would fund startups such as GTI, are unwilling to work directly with marijuana companies for fear of jeopardizing their own federally regulated businesses.
"The market that works best for us right now is in Canada," Kadens said in an interview. He declined to say how much money he hopes to raise on the public market, but so far GTI has raised more than $100 million, mostly from individual investors.
"The terms from U.S.-based investors willing to take a risk on marijuana are pretty brutal compared to what you could get on a public market," said Robert McVay, a Seattle-based partner at Harris Bricken law firm who specializes in working with marijuana businesses. "It's access to capital without feeling like you're mortgaging your future."
There are other benefits, too. The Canadian markets are valuing some marijuana-related companies as much as 10 times higher than they would be in the U.S., says Michael Gruber, managing partner of Salveo Capital, a Chicago-based fund that's making investments in cannabis companies. "If you see those valuations, it does become an attractive option—it seems like a way to raise a lot of money quickly," McVay said. "It immediately raises the profile of the company and raises the valuation of the company."
It was a Chicago-connected company that helped draw attention to the Canadian market, where cannabis is legal. Constellation Brands, the distributor of Corona and other beers, spent $191 million to buy a 10 percent stake in Canopy Growth, the largest publicly traded cannabis company. "When Canopy did the deal with Constellation, that opened a lot of people's eyes to how big the Canadian finance markets are," McVay said.
Kadens previously built a solar-energy company, SoCore, which he sold to Edison International in 2013. He and Ben Kovler, a private-equity investor whose family previously ran Jim Beam, made an early move into cannabis, sensing the market would grow exponentially. They won licenses in Illinois, where medical use of marijuana has rolled out slowly. But they also won licenses in Nevada and Massachusetts, where recreational use has been approved.
GTI is making a push to become one of the winners in the land grab unfolding in the marijuana business. "This is prohibition 2.0," Kadens said. "Brands at scale win. We'll be investing a lot in our brands in the next 18 months."
Prospects for the cannabis industry have never been greener as a majority of Americans now favor legalization. Twenty-nine states allow cannabis for medical or recreational use and sales are projected to reach $75 billion by 2030 from about $6 billion in 2016, according to Cowen & Co. Because federal law still prohibits it in the U.S., producers are turning to Canada, where full legalization is expected this year.