BusinessCann(UK)-Peter McCusker: New Listing Proposals Could Exclude Cannabis Startups From The London Stock Exchange

PROPOSALS to set a minimum valuation level for companies looking to list on the London Stock Exchange could limit the number of cannabis entrants to the market.

new consultation paper from the Financial Conduct Authority recommends that only companies valued at £50m and above should be permitted entry to the LSE’s main market.

If the rules were in place now they would impact on a number of aspiring companies, and could have impacted some of this year’s market debutants.

This comes as the FCA has updated its guidelines for cannabis businesses looking to access the UK public markets.

Four Debutants in 2021

In February, MGC Pharmaceuticals became the first cannabis company to list on the LSE with an opening day valuation of over £40m, it subsequently soared to over £100m and now has a market cap of £37.5m.

Later that month Cellular Goods soared to almost £100m on debut and is currently valued at 38.5m. Both Oxford Cannabinoid Technologies and Kanabo were priced at over £50m on debut with OCT now valued at £31.2m and  Kanabo at £63m, respectively.

CiiTECH and South West Brands are earmarked for the LSE main market, with both likely to fall below the new proposed benchmark valuation.

Cannabis lawyer Nick Davis, Managing Director of Memery Crystal, worked on the MGC deal and is currently advising South West Brands.

Nick Davis

He believes there is some merit in smaller companies in cannabis, and other sectors, looking to London’s more junior markets such as AIM and Aquis.

“Naturally, being on the LSE main market affords a business with improved access to capital and there is a certain element of prestige attached to the LSE.

“However, smaller companies on the standard market are up against the FTSE 100 companies – will investors know who they are there? Many companies on AIM will be traded more frequently than LSE standard companies.

“In reality it is not really about the market, it’s about the company – you can have hugely liquid companies on Aquis and illiquid companies on the main market. It’s not a market; its a company thing.”

AIM or Aquis Alternatives

Michael Bennett, a Partner at law firm Hill Dickinson, has extensive experience in the cannabis sector and believes the nature and maturity of a business will determine the most suitable market to match its ambitions.

He said: “It really depends on the company; if you’re an early-stage cannabis start-up then the standard list isn’t designed for you.

“If you are looking to make a lot of acquisitions, for example, then you are better suited to Aquis or AIM, where the rules are specifically designed to support rapid growth.”

For example, on the LSE standard market a company cannot issue more than 20% of its share capital in any 12-month period without publishing another prospectus.

For fast-growth business this is an effective way to deliver on their objectives with neither AIM or Aquis imposing such restrictions.

The current FCA rules place a minimum valuation of £700,000 for listing on the London Stock Exchange.

So the £50m proposal is a significant increase – CBD and medical cannabis company CiiTECH last week declared its intention to list at an initial valuation of £17.5m.

Mr Bennett believes that with the IPOs of this year’s crop of LSE cannabis companies heavily over-subscribed then the likes of MGC could well have achieved the £50m minimum valuation, if it had been in place at the time.

The proposed minimum valuation limit was included in Primary Markets Effectiveness Review proposals from the Financial Conduct Authority designed to ensure the UK’s public markets remain globally competitive.

Alasdair Haynes

Welcomed By Aquis Chief

Alasdair Haynes, Founder and CEO of Aquis Stock Exchange (AQSE) welcomed the developments saying: “Aquis was way ahead of its competitors in welcoming medicinal cannabis-related companies to float on its growth market.

AQSE specialises in helping growth companies to achieve their objectives in an appropriate regulatory environment. We do not believe that a ‘one market fits all’ strategy works well in public markets and have thus divided our venue into the Main Market, for large and mature businesses, and our Growth Market into the Access segment for very early stage companies and the Apex segment for more established growth businesses.

There are different entry and conduct rules for each market segment. At AQSE a new venture can come to the Access segment to learn about being a public company, then move to Apex as it matures and can take on different responsibilities – eg. adherence to a corporate governance code, and then ultimately progress to our main market when it’s a fully mature company.

We are pleased the LSE has decided to follow our philosophy of ‘appropriateness’ and has limited its accession criteria to companies of £50m and over market cap. Companies should seek to float on the market most suited to their needs at each stage of their lifecycle.

Companies IPOing on AQSE have a shorter and more efficient route to market than elsewhere in the UK and both the issuer and the investor benefit by the more liquid secondary market that has been created as a result of new measures AQSE introduced in January – eg. a market maker scheme that limits spreads.

“Furthermore, we believe that the public should have fair and equal access to IPOs and have introduced the use of the Growth Prospectus that allows pre-qualified individuals to get involved in the flotations of Apex companies.”

FCA Cannabis Rules

It was in September last year that the UK Financial Conduct Authority announced it was charging its rules to allow cannabis companies to list on the LSE.

Essentially the rules allow companies trading in medical cannabis and CBD, either domestic or overseas ones, to be admitted to the exchange.

However, those overseas business with a recreational division or focus would be barred from the UK as an investee would be transgressing the UK’s Proceeds of Crime Act.

In the last few days the FCA has updated this guidance adding in a few additional caveats in relation to due diligence and transparency.

Mr Davis added: “There is a little more detail around the level of due diligence required. But, quite frankly, any serious player would be doing this anyway. We always start an early dialogue and explain what the business looks like and what we’re trying to do. There are no fundamental shifts; nothing to move the dialogue.”

Mr Bennett believes this guidance will speed up market activity on AIM. He added: “We have no cannabis companies on AIM as they have been waiting for guidance.

“However, once the first cannabis company debuts we should see more arrivals as confidence grows.”


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Ian Stewart – Wilson Elser Moskowitz Edelman & Dicker LLP
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Lance Rogers – Greenspoon Marder – San Diego
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Adam Detsky – Knight Nicastro
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Peter Fendel – CMR Real Estate Network
Nate Reed – CMR Real Estate Network

Matthew Ginder – Greenspoon Marder
David C. Kotler – Cohen Kotler

William Bogot – Fox Rothschild

Valerio Romano, Attorney – VGR Law Firm, PC

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Tracy Gallegos – Associate Fox Rothschild

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Matthew G. Miller – MG Miller Intellectual Property Law LLC
Daniel T. McKillop – Scarinci Hollenbeck, LLC

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Gregory J. Ryan, Esq. Tesser, Ryan & Rochman, LLP
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Paul Loney & Kristie Cromwell – Loney Law Group
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Teddy Eynon – Partner Fox Rothschild