By Marguerite Arnold
The process as well as the battle to put marijuana firmly in the ranks of America’s most profitable and above-board business is taking place in several places beyond the legislative battles on the state and federal level. Even on that front, however, business is frequently on the front lines of change. The rules if not the procedures to allow the industry to operate are being redefined everywhere.
While there has been a significant victory in Oregon to open up delivery services and challenges to the status quo are taking place in banking, the most promising development for everyday investors is the ongoing effort to open up the public markets to marijuana firms. One of the most interesting firms in this regard is the cannabis social network, Massroots (OTCQB: MSRT).
The Denver-based firm, which began trading on April 9, 2015, applied for a Nasdaq listing on Aug. 31, but the company passed a major hurdle on Nov. 3 when it filed a Notice of Effectiveness for its S-1 with the SEC. The company can now move forward with the remaining requirements necessary to get listed on the exchange, which is the index where major public technology firms are listed.
The company must now pass the next three tests:
- The company share price must reach $3. The company’s share price has fluctuated since its IPO, but shares have been trading above $1 with legitimate volume over the past few months.
- Create a corporate governance structure in accordance with Nasdaq’s Listing Rule 5600 Series, which means the company must perform certain tasks, including appointing an independent director, establishing an auditing committee and adopting a code of conduct, among other strict standards.
- Raise a minimum of $5 million in shareholder equity. According to the company’s amended S-1 filed on Oct. 29, it plans to issue a stock offering of 6.4 million shares to raise $8 million.
If the company is successful, as many industry watchers expect, it could pave the way for more marijuana firms, including those that touch the plant, to not only go public but raise equity through this process.
In the coming years, this access to capital will become increasingly important because of the growing legitimacy of the business. Right now, the vast majority of equity raised for the industry is coming through private placements in privately owned companies. The industry is still considered too risky for institutional investors because cannabis has not been rescheduled.
Yet, even on this front, Massroots is hoping to change the status quo. “Uplisting to the NASDAQ Capital Market would be a significant milestone not just for MassRoots, but the cannabis industry as a whole,” said Isaac Dietrich, CEO of MassRoots, when the company first announced its plans to uplist. “We believe that uplisting to a national exchange like the NASDAQ would enable MassRoots to attract a broader range of institutional investors.”
If the company can raise its desired goal of $8 million, the funds will cover the company’s operating expenses for the next two years.
MassRoots now has 24 employees and employs a business model similar to that of Facebook and Twitter which raise money through advertising. On Monday, Nov. 16, the company will release its Q3 earnings report after the market closes and will host a shareholder conference call at 5:30 p.m. EST.