Welcome to inaugural issue of Public Entrepreneur, the new magazine published by the Canadian Securities Exchange (CSE).
Public Entrepreneur represents a bold and exciting new chapter in the CSE’s story, one that will better reflect the growing presence of the “Exchange for Entrepreneurs” in the Canadian public market space.
With over 350 securities now listed on the CSE and more joining every day, share turnover measured in the billions and innovative new services, like tokenized securities being brought to market, we believe this new magazine will chronicle the next chapter in the CSE’s storied commitment to public entrepreneurship.
To that end, Public Entrepreneur will continue the traditions started by its predecessor, the CSE Quarterly, namely, to focus on the stories and entrepreneurs that emerge from CSE-listed issuers. Publication will also continue to take place quarterly. What is new, however, is that Public Entrepreneur will also broaden its scope to include coverage of the opportunities and personalities that shape life in Canadian public markets.
We hope you enjoy this first issue of Public Entrepreneur and look forward to bringing readers even more great content in the next issue. For readers interested in accessing archives of the CSE Quarterly, click here.
Around a third of all Florida residents, or some 6 million people, could qualify to use medical cannabis, so there’s good reason for the Sunshine State to be the initial focus for Liberty Health Sciences (CSE:LHS).
“Florida is one of the most populated states in the U.S., but it also offers quite a diverse amount of chronic medical conditions that doctors can prescribe cannabis for,” says George Scorsis, Liberty’s chief executive officer.
At present, the state has just over 36,000 patients registered for medical cannabis, after a 300% rise in registrations in the past quarter. Liberty is one of only 13 companies licenced to cultivate, process and dispense it by the state government.
Research suggests Florida could be a US$1.6bln medical cannabis market by the end of the decade. In other words, it has the potential to eclipse Colorado, a pioneering state in legalizing cannabis, as the latter is forecast to be worth US$1.5bln by then.
As we reach the fourth quarter of 2017, 29 states and the District of Columbia have legalized the use of cannabis in some form. Last year provided something of a tipping point, with five additional states, including Florida, approving medical cannabis use, while states such as California and Nevada also approved the drug for recreational consumption.
At a federal level the market is a greyer shade of green – the state by state legalization does not equate to national legalization, and businesses thus cannot operate across state lines. In other words, each state has its own regulations and within each state businesses must establish internal production and distribution channels.
As a result, Liberty’s strategy is to enter specific state markets and embed their entire verticals within those states. Scorsis highlights the importance of Liberty’s approach to growing its business, where Florida is the initial focus, and new ventures in other states are in the pipeline. Discipline is a particularly important tenet of the strategy.
“First and foremost, we will only enter into medical markets. There are now a tremendous number of markets that allow medical cannabis, such as Florida, Ohio, Pennsylvania, Maryland and Connecticut, with more on the horizon,” says Scorsis.
“We plan to enter into all of those markets if they follow through with the second criteria in our business strategy, which is the number of chronic conditions that the states permit for medical cannabis treatment.”
Scorsis points out that in Florida, for example, more than 30% of the population could qualify to become a medical cannabis patient. Meanwhile, in Ohio that figure is around 24%.
Moreover, there are some 3mln potentially qualifying patients in Pennsylvania, equating to 24% of the state’s population, while in Maryland the figure is 1.8mln patients or 30% of the population. Connecticut is estimated at 20%, or 736,000 people.
Conversely, Scorsis notes that in New York State the medical cannabis program is too “narrow” to meet the company’s investment criteria.
Liberty is targeting states with both large populations and large numbers of qualifying patients not only with revenue in mind, but also cost – producing at a certain scale is a necessity to meet the business objectives in a given market.
“We need to ensure that we can provide what truly differentiates us from all our competition,” Scorsis explains. “We are experienced commercial greenhouse growers and can produce the lowest cost, highest quality cannabis in the marketplace. That means we can supply it to the patient at a more accessible price than anybody else in the industry. We don’t enter into markets that have canopy restrictions because we would like to grow at scales in excess of 100,000 sq. ft.”
With such major ambitions it is nice not to be going it alone, and in this respect, Liberty benefits from the support of successful licensed Canadian cannabis producer Aphria. That C$1.3bln company owns 36% of Liberty and provides both licenced products and operational expertise.
Notably, since adopting Aphria’s licensed production techniques, Liberty has increased output by about 15%.
Liberty’s current footprint in Florida comprises a 14,000 sq. ft. growing operation on a 36-acre property in Alachua County. Production capacity is approximately 700kg of cannabis per year.
By March 2018, Liberty aims to be growing 3,000kg per year as it ramps up to 56,000 sq. ft. of growing space. Over the following years, Liberty expects to be at 13,000kg and an intended 187,000 sq. ft. of room for growing.
Retail outlets are also part of the plan, and before the end of 2017 the company anticipates having dispensaries open in Fort Lauderdale, Miami and Tampa. Locations are planned for Orlando, Tallahassee and Pensacola by June.
With anticipated annual production of 13,000kg and an increased retail footprint, Liberty would be supplying the equivalent of 20,000 patients.
The opening of mass market consumer states like California (where the new legal framework officially comes into effect in January) will hold strong appeal for cannabis companies and their investors.
But Scorsis definitively sees Liberty as a medical cannabis company, with specific competitive advantages.
“Medical cannabis is who we are. It’s the ethos of our organization,” Scorsis emphasizes.
“We truly believe that cannabis is a product that should be used for medical purposes. Our intellectual property, our knowhow and the equipment that we have invested in are really designed to produce products for medical purposes.”
“For instance, not only do we produce the highest quality cannabis at the lowest cost, we inspect our products over 500 times before they are released to any patient. Why? Because it is medicine.”
Exro Technologies Inc (CSE:XRO) has developed a technology to enhance an invention that has served mankind remarkably for more than 150 years.
Exro’s dynamic power management technology enables electric generators and motors to work at peak efficiency, even at variable speeds.
Why is that important?
As Exro’s chairman and chief executive officer Mark Godsy explains, electric generators only work efficiently at a single speed, and “if they go too fast, it’s a challenge; if they go too slow, it’s also a challenge.”
For scores of years this has not been a problem because generators have used an energy source – coal, diesel, or gas – that allows the rotating part of the generator to remain at, and operate at, a consistent and optimum speed and torque, but the increasing push towards renewable energy is changing the game.
Exro’s technology adds some smarts to a generator and an electric motor
Mother Nature may be bountiful, but she is not constant, and if you don’t believe it, think of those seemingly paradoxical reports of wind turbine generators shutting down because it is too windy.
“What we do at Exro is, very simply, bring Intelligence to a generator and an electric motor,” Godsy says.
So, what’s the big twist on the ancient technology?
The traditional generator works off a single configuration of coiled copper wires, whereas Exro’s does not.
“We isolate all of the coils. We then create circuits amongst them, driven by a computer that, depending on the speed and torque, will reconfigure the coils in the generator for exactly the right speed and torque, creating an efficient and “Intelligent” generator,” Godsy explains.
The technology was invented by Jonathan Ritchey, Exro’s founder and its chief scientist and designer.
Optimizing power systems is becoming more important in the current economy.
“The problem does not apply only for renewables,” Ritchey declares.
Take electric motors. These are essentially the flip-side of electric generators, and the same conundrum applies: getting the motor to work at maximum efficiency at variable rotational speeds.
“These are the technical issues that Exro is addressing,” Ritchey asserts.
Ritchey sees a lot of applications for Exro’s technology in the high-profile sector of electric and electric-hybrid vehicles.
“Put in our technology and it will allow you to have a situation where we not only gather more electricity when you are braking but that electricity does more for you when you are converting it back into mechanical energy,” Ritchey says.
The potential breadth of applications for the technology is enormous, but initially, Exro is targeting proof of concept in wind energy, unmanned aerial vehicles (drones) and electric/hybrid vehicles starting with electric bicycles.
The company has built three prototypes to prove its technology’s viability and is now focusing on early market opportunities.
In a capital-intensive, low-margin business, those sorts of efficiency improvements are sure to make wind farm operators sit up and take notice. Exro’s technology can also be used to retrofit existing wind turbines.
As for drones, these will become more efficient, paving the way for smaller drones or bigger payloads, and potentially longer flying times.
Exro has already signed a development agreement with a leading supplier of propulsion systems for drones and is working towards validating the technology for this application.
As for electric/hybrid vehicles, reduced electricity consumption and greater power regeneration when braking could significantly reduce the range anxiety for drivers.
The Exro business model envisages income from licensing fees and royalties
The name of the game for Exro is to prioritize near-term market opportunities with low execution risk.
A key aspect of this strategy calls for securing partnerships with leading companies who have their own design and manufacturing facilities and distribution channels.
Exro’s revenues will largely come from licensing fees and ongoing royalties, in return for allowing the use of its technology to be integrated into generators or electric motors.
“The reason for a licensing/royalty model is to achieve scale and create concurrent value for our shareholders. Our proprietary technology has the potential of creating intelligence in billions of electric rotating machines — be it in generators or electric motors. If we were to do an elevator a day just for the approximate 17 Western European countries, it would take us over 1,000 years,” Godsy explains.
“We need to work synergistically with parties in this space by working with them, not competing against them.
“We want to work with all companies that can benefit from our technology – not unlike Intel wants to provide processors to all computers versus creating its own computer brand and competing with them – working with companies is a much better long-term strategy since our technology is easily integrated into generators and motors,” he adds.
If that sounds like the semi-fabled “win-win” scenario, there’s actually a third “win” to be taken into consideration and that’s the environmental aspect.
It was one of the things that drew serial entrepreneur Godsy to Exro in the first place.
“I was attracted to Exro as I am concerned as much now about the health of our planet as I am about the health of people. Exro has an opportunity to change the way we create and use energy, which can help our planet and reduce the other related issues connected to energy. The win-win here also includes the opportunity to build value for our shareholders,” Godsy says.
Company founder Ritchey believes the drive to a clean power world will eventually come down to economics.
In other words, the bottom line will be the bottom line or, if you prefer, it will happen because “torque is cheap”.
“So, if we’re able to make that economically viable now, it’s not a carrot and the whip; it’s not the subsidies, the tax credits; it’s because it is also the best financial decision.”
If there is one thing that Trent Kitsch ingrained in himself while building SAXX Underwear into a multi-million-dollar company, it was the value of a brand.
SAXX entered the men’s underwear market with an innovative line of undergarments sold online at higher than average prices and margins. The premium quality appealed to plenty of men who were willing to pay a little extra to take care of their bodies, with clothing they felt was made with more care and attention than they could find elsewhere.
It is precisely this approach that Kitsch and his team at DOJA Cannabis Co. (CSE:DOJA) intend to follow in building their newest venture: a collection of cannabis and lifestyle products created with meticulous care.
“Our background is building brands in the fashion and wine worlds,” says the DOJA CEO, who founded not only SAXX Underwear but also award-winning Kitsch Wines.
“DOJA is a brand built around the uncompromising quality of its product. We do things differently than most of our peers in how we cultivate, hand-trim and cure the cannabis we grow.”
Kitsch explains that hand-trimming retains the look of the flower better than the more popular approach of machine-trimming, while keeping more of the terpenoids and other desirable components machines tend to rustle off. Rather than removing buds from plants the moment harvesting begins, DOJA hang-dries and cures its product on the stalk. “You get a better finish that way,” says Kitsch. “It brings out superior flavors, trichomes and aromas.”
DOJA is headquartered in British Columbia’s picturesque Okanagan Valley. With 2mln visitors that come to the region each year, the company plans on leveraging the vibrant tourism market to build a far-reaching brand.
The company also believes it will soon have the opportunity to show the rest of Canada the difference its artisanal approach makes.
DOJA received its license to cultivate under Canada’s ACMPR (Access to Cannabis for Medical Purposes Regulations) framework on June 16 of this year.
Soon after the first harvests, a request to Health Canada for a Pre-Sales License Inspection was submitted. The inspection is the final step ahead of the government issuing DOJA a Sales License under the ACMPR.
With license in hand, DOJA’s primary distribution channel would be online sales direct to the customer.
“Channel two will depend on how the provincial governments announce their planned sales structures,” says Kitsch, alluding to the expected legalization of cannabis in 2018. “We are hoping some of the provinces see opportunities similar to those in the wine industry or agriculture tourism and that some of those channels open up to us.”
DOJA is planning for its products to be very popular, having already invested in a second growing facility that will expand its overall production capacity by more than 700% to just over 5,000kg of dried cannabis per year. The new 22,580 sq. ft. Future Lab facility, located close to the Kelowna International Airport and the University of British Columbia’s Okanagan Campus, will be home to DOJA’s research into new and unique cannabis strains, processing, as well as exploration of the edible and oil extract markets.
The proximity of the Future Lab to the airport will not only reduce both cost and time required for delivery but the 60,000 travelers who traverse the road in front of the facility each day will be exposed to the DOJA brand on their commute. Estimates around permitting and construction time have DOJA intending to open the Future Lab in the summer of 2018.
There is one other DOJA initiative helping to create awareness around the brand and the various aspects of cannabis. The DOJA Culture Café in downtown Kelowna will act as a hub for cannabis information within the community. Here, customers can have a coffee or a meal, while also learning how to access and use cannabis safely, depending on their particular needs.
DOJA, whose shares began trading on the CSE on August 9 of this year, is well capitalized to execute on the first phase build-out of the Future Lab. Plans also call for borrowing against their newly acquired facility to further bolster the company’s working capital position.
When asked about the outlook for DOJA, Kitsch responded, “The sky is the limit. Our brands and unique advantages will differentiate us from the pack, and in one to three years I could see us being acquired by a larger company who wants to have a B.C. footprint and a premium lifestyle brand in their portfolio.”
Near term, though, Kitsch believes the investment community would do well to keep some potential share price catalysts in mind.
“Once we receive our sales license I would say we’d be quite undervalued at our current share price and there would be a strong investment thesis for DOJA on a relative valuation basis,” says Kitsch. “Ahead of legalization, I think positive sentiment will continue to pick up and an increasing number of people will start to see cannabis as a viable investment opportunity.”
Innovation is oftentimes the result of people approaching a problem from an angle that others haven’t considered. That’s precisely what the team at Ortho Regenerative Technologies (CSE:ORTH) is doing as it tackles some of the world’s most common surgeries – tendon, meniscus and cartilage repairs in shoulders, knees and other joints.
Chief Executive Officer Brent Norton explains that the long-term result of removing damaged cartilage or meniscus is about the same as not having any procedure performed at all. Similarly, studies show that shoulder tendon repairs fail at an alarming rate. Missing its natural elasticity and shock absorber, a joint can deteriorate to the point that arthritis sets in, and if things get bad enough movement is very limited and full joint replacement often becomes necessary.
Ortho’s technology is all about leaving these soft tissues in place and treating them so they repair themselves.
“Long term, if we can treat injury versus treating the complications of the injury, that’s the better way,” says Norton. “The opportunity is to heal the soft tissues, and the result is that we no longer treat complications such as pain and arthritis, have people miss work and be inactive, nor have to bear the expense of introducing an artificial joint.”
Tendons, cartilage and meniscus are close to the last in line to receive blood supply in our bodies and are relatively avascular, meaning they have few blood vessels. The bottom line is that because blood gets little chance to bring revitalization to these body parts, they do not heal well and thus need assistance.
There are medicines that promote healing in tendons and meniscus but they have to remain in contact with them for a meaningful period of time. Not only do joints naturally involve internal motion, they also contain lubricants, which usher medicines away from the locations that need them.
Ortho’s solution is to apply what in industry parlance is called a scaffold to hold the medicine in place long enough for it to work. Essentially, it is a special compound made from a naturally occurring protein that a surgical team mixes with a patient’s blood to ensure efficient delivery.
The scaffold will remain in place for several weeks before naturally dissolving, but in the meantime it ensures the medicine is hard at work on the body part that needs to heal.
“Years ago, when we took pills we took them several times a day,” says Norton in drawing an analogy. “Then someone invented the sustained release formulation, which allowed you to take a pill only once or twice a day because it was sustained release. It is a similar principle.”
The technology was borne of studies conducted by two of the world’s most prominent researchers in soft tissue repair: PhDs Michael Buschmann and Caroline Hoeman. Their initial scaffold for joints had promise, but it took 30 or more minutes to prepare for use when the patient was in the operating room, a factor reducing efficiency and contributing to it being cost-prohibitive.
Norton is a medical doctor himself who practiced largely in the field of sports medicine. Early on, though, he knew that he wanted to mix actual practice with directing innovation to have the greatest impact. “I decided to do an MBA at Western University because I wanted to be a driver of technology rather than a clinician seeing one patient at a time,” he says.
Norton’s career path would lead him to be that driver in several corporate settings, including with Novadaq Technologies, a medical imaging solutions company acquired in 2017 by Stryker Corp.
“With Novadaq, at times I felt like I was the coach, and was a founding director,” says Norton. “I helped with strategy, building the shareholder base, the board, hiring a professional CEO, recruiting the investment banks to take it public, and ultimately helping to lay down the strategy to get third-party validation and revenues. We created multiple partnerships, got FDA approval and a TSX listing and then it went on to have a Nasdaq listing and was sold to Stryker for C$900 million.”
All of which, including the chance to return to his career starting point in Montreal, would seem to make Norton a good fit at Ortho. “When I took this role, I got messages from friends and colleagues saying ‘right back to your roots’. It is more than coincidental, it’s optimal,” he observes.
Ortho’s product performed well in pre-clinical studies and is now in the final stages of animal studies, with expectations that it will move to human trials in 2018.
Given that Ortho’s product is in the biologic category, the first step with human studies requires the company to prove that it is safe to use, something Norton expects the product to achieve with ease.
The second study in a biologic is the main study, or pivotal trial, which regulatory bodies use as the basis for their effectiveness assessment. The pivotal trial would likely begin within two years from now. After that the company would apply for FDA (US Federal Drug Administration) approval.
But that timeline hardly means investors will be left without milestones to cheer on in the near future. When asked, Norton lays out a pretty full slate.
“This is the first fully patented product of its type in the world and we have an evolving patent family for it,” Norton explains. “Over the next year we expect to see patents issued around much of the world for this product.”
“Key studies have also been accepted for publication in multiple scientific peer reviewed journals.” Norton says this means that some of the images and information on the product will take center stage in the related scientific community.
“In my experience, having five papers in the queue to be published is something I have never heard of,” he says. “In the next short while we will have multiple papers and studies published, and we can anticipate our approval to begin human studies, which typically drives a lot of corporate value.”
Norton emphasizes that it is up to the researchers to assess whether a product works, whereas management’s role at a biotech company is to minimize other risks and drive the strategy. He points to responsibilities such as making use of capable intellectual property firms, bringing in skilled accountants and hiring an experienced management team.
“In Ortho’s case, the risk profile of getting through to a pivotal trial is nominal,” Norton concludes. “You can never guarantee biology or the ultimate results, but our goal is to optimize the process in the most cost-effective manner to get through to an FDA approval in the next three to four years. We are managing the company to reduce the risk of everything else, so that the only thing we are betting on is the results.”
CannTrust Holdings’ (CSE:TRST) emergence as a leading player in Canada’s medical cannabis market has enabled it to achieve a market capitalization north of $600mln since debuting on the Canadian Securities Exchange on August 21 of this year.
As impressive as that is, Canada’s plan to legalize recreational use of the drug, widely expected in July 2018, clearly has the potential to take the company to even greater heights.
The licensed producer acquired a 430,000 sq. ft. greenhouse in Niagara, Ontario and has completed a first phase, state-of-the-art renovation of 250,000 sq. ft. that is now in production.
The second phase of 180,000 sq. ft. will be finished by March 2018, and with 430,000 sq. ft. in production the conservative estimate for annual output is 40,000kg of cannabis.
Late 2018 should see an additional expansion of 600,000 sq. ft. on the 46-acre site to meet anticipated growth in demand from medical and recreational users.
A larger long term player…
Chief Executive Officer Eric Paul explains this will cement CannTrust’s position as one of the larger “longer term players” in the Canadian cannabis market. As it is, the company is already firmly in the top 10.
Canada is one of a handful of countries where medical cannabis is legal, and permitting recreational use will not only fulfill an election promise by Prime Minister Justin Trudeau, but also means it will become the first major industrialized nation with a system permitting both uses.
Paul is bullish on the potential for the recreational market, pointing to projected numbers from groups, including Health Canada, which put its size above $5bln annually.
“Anyone who’s buying in now (to CannTrust) – because they are buying into a company that’s well-structured and has the physical assets to grow high quality product at the right cost structure – is going to win,” suggests Paul.
“I think cannabis will take a seat at the table along with all the other drugs that are out there and be prescribed routinely and used on a regular basis.”
Founded in 2013..
CannTrust was founded in 2013 with a view to getting a license under the Access to Cannabis for Medical Purposes Regulations (ACMPR) framework, which it accomplished early in 2014.
It started selling product in 2015 via mail based on physician’s prescriptions and now boasts a “menu” for customers of around 12 high quality products, including oils.
These can be used for symptoms ranging from pain to stress to sleeplessness and auto-immune conditions.
The company went public in August of this year, when it was producing from an indoor hydroponic facility with annual capacity for 2,500kg of cannabis.
The shift to a large new greenhouse taking advantage of natural light allows CannTrust to increase output and reduce operating costs, explains Paul.
Taking production to 1mln sq. ft. once the full expansion plan has been implemented should make CannTrust one of the top three Canadian producers.
An expanding customer base..
Paul says the CannTrust customer base has expanded 117% since May to 32,500 active patients, positioning it among the fastest growing players in the industry.
In addition, its greenhouse approach allows CannTrust to produce cannabis for some 50% less than facilities completely dependent on artificial light. The reduction in costs from around $1.50 per gram to $0.75 can be expected to have a positive influence on margins.
The first phase greenhouse expansion has already been funded and a recent $20mln placement will pay for the second phase, as well as some ancillary improvements to supply channels.
Interestingly, Paul thinks the market that observers refer to as “recreational” is actually being mislabeled.
“We don’t believe that everyone out there is just the sort of person who wants to get high at the weekend. We’re postulating that two thirds of the recreational market is a person over 30 who’s chronically ill and self-medicating,” he says.
With revenue rising quickly, Paul expects the company to be profitable in the 2017 financial year. Analysts see the potential as well.
Haywood Securities recently began covering the stock with a ‘Buy’ rating and target price of $8.00.
“CannTrust reported Q3/17 growth of 35%, resulting in revenues of $6.1 million. Importantly, the company also announced that 61% of its sales were from oil products that drive higher margin sales,” said Haywood.
“We believe that CannTrust’s % of sales of oil/extract products will continue to increase, particularly as it releases new products, such as capsules it is currently working on, but other novel products that are likely to be developed through its partnership with Apotex (private).”
The broker predicts EBITDA of $5mln on revenues of $20.7mln for 2017.
Canaccord initiated coverage in October with a ‘Speculative Buy’. “Based on the company’s low-cost production, leading growth profile, and forecast superior margins (driven by its medical strategy), we believe that CannTrust deserves to trade at a premium multiple to peers,” Canaccord stated.
The company’s performance on the CSE has proven the analysts right, with its share price recently cresting $7.50, up some 200% from its August debut.
It is quite a story, but with regulatory change on the horizon and production set to rise several fold, CannTrust looks to just be getting started.
The “final” edition of the CSE Quarterly is now live. It has been a great run, with inspiring stories of ingenuity, intrepidness, and excellence of companies listed on the Canadian Securities Exchange in every issue.
Thank you to the entrepreneurs for helping to make the CSE Quarterly such a success over the past several years.
Though this will be the final issue of the CSE Quarterly, there is another exciting project on the horizon that will carry the entrepreneurial torch forward.
With 2017 now officially in the record books, CEO of the Canadian Securities Exchange, Richard Carleton sat down with Peter Murray of Kiyoi Communications, to discuss the best year on record at the CSE. Included in the discussion were important developments that took place at the exchange, the evolution of the cannabis investment landscape as well as opportunities in blockchain, fintech and more that the CSE will be looking to next in 2018.
PM: It has been a truly phenomenal year for the CSE in terms of growth in trading volume/value, capital raised and many other measures. This has particularly been true in the fourth quarter, with the most active issues routinely trading well over 20 million shares per day. As the exchange’s CEO, what would you point to as the highlights of 2017? What is driving the success?
RC: There are multiple factors working in our favour at the moment, but clearly our decision more than three years ago to welcome the original applicants for the MMPR (Marihuana for Medical Purposes Regulations) licenses in the Canadian cannabis space is one that has proven to be quite sound as far as growth and development of the exchange is concerned.These companies have caught the attention of the retail investing public in particular, although the broader investment community is beginning to support and invest in them as they mature and grow.
We have seen a tremendous increase in trading volume in the cannabis space, and it has had a knock-on effect on technology, mining and other sectors on our exchange.
Overall, it has served to dispel a number of the incorrect, but in some cases widely held, beliefs about companies listed on the Canadian Securities Exchange in terms of liquidity and challenges to completing secondary financings. Given the trading turnover and secondary financings completed by issuers in multiple industry sectors on the CSE this year, I think we have laid those concerns to rest for good.
At the end of the day, our success in 2017 was simply a case of presenting companies to the marketplace that the investment community was interested in, and the community responded accordingly. Back to top
Market participants: Proprietary traders and retail investors
PM: Looking at just trading volume for a moment, are program traders, algorithmic trading and high-frequency traders accounting for a considerable percentage of the activity? Some people in the markets don’t like their presence, whereas others appreciate the liquidity they bring. What is their status on the CSE?
RC: We have a pretty good idea where the trading volume is coming from, and we have seen increased participation from proprietary traders, which I would define as people who tend to pursue relatively short-term strategies such as market-making or cross market arbitrage. By and large, that activity is not driven by computers but by actual human traders pursuing these strategies in the market.
But far and away the largest percentage of participants are in fact investors and individual traders. It is human beings hitting the enter button, and doing that, generally speaking, through the facilities of one of the discount brokers in Canada. Back to top
On tap for 2018: Cannabis, blockchain and more
PM: How do you follow up on a successful year like 2017? What is the 2018 game plan?
RC: We certainly think the cannabis space has a way to run, and we see that in our pipeline of applicants seeking to list on the CSE. We expect to see additional companies looking for growth capital to serve a particular segment of that market, whether it be recreational cannabis in the United States, cultivation internationally, or some aspect of the therapeutic market.
And, of course, with legalization anticipated at some point in Canada during 2018, it will be interesting to see how the industry develops specifically here at home.
We are also seeing a tremendous number of companies with some component of blockchain technology in their business development mandate, many of them looking to address some inefficiency, cost or risk for people on the payment side. There are quite a few interesting applications of blockchain technology to reduce the cost and risk of the payments process both for the customer and for companies.
We have a number of blockchain companies on the exchange already, there are more coming, and based on the funds raised and the interest in existing issuers, I think we will see a continuation of the high level of trading activity witnessed in the latter part of 2017. Back to top
Growth in new listings
PM: The CSE welcomed over 50 new issuers in 2017. What is the pipeline looking like as we begin 2018, and where are the issuers coming from in terms of sectors?
RC: The interesting thing is that even as the pace of listings reached record levels in the fourth quarter, each month we received more applications than companies listed. In other words, even though we were listing more companies than we ever had before, the pipeline was growing.
As a general observation, the companies listing now tend to be larger, more mature and better capitalized than at any other time in the history of the Canadian Securities Exchange.
I mentioned the cannabis and financial technology sectors, with a particular focus on blockchain, but a number of the more traditional sectors are also seeing investor attention. There is certainly interest in the mining space. We have seen a number of transactions funded for later-stage mining projects, often with a clear path to initiating production. Those companies do tend to be larger and are looking to raise substantial amounts of capital to complete their business programs.
It really is a situation where, with the possible exception of the oil and gas space, we are firing on all cylinders. Back to top
PM: Cannabis is a relatively new business sector for public markets and the CSE deserves credit for providing a platform enabling a substantial number of these companies to obtain the funding needed to carry their businesses forward. We now see a similar dynamic with companies in the blockchain space. Does the CSE have a unique proposition for these companies and is the exchange itself looking at opportunities with this technology?
RC: Let me begin with the first part of the question. The CSE’s proposition is really the same for all companies looking to access the public markets. We seek to facilitate the lowest cost of public capital for these companies, principally by providing a very streamlined listings process, and then once the company is listed to provide cost certainty in the form of fixed fees, regardless of how active the company is in secondary financings, changing its business, making acquisitions and other activities.
Our promise is that those companies will be able to conclude those transactions with more disclosure to the marketplace, but with less interference and second-guessing of their business plans from the exchange as their principle regulator.
Fundamental to the DNA of the CSE is that we believe the marketplace is best suited to price the risk and benefits of management’s business decisions, and not somebody at the exchange. To ensure this is the case, we must make sure the companies are providing the best possible disclosure to the marketplace so those decisions can be made.
I think it is interesting to see how fintech, and blockchain in particular, has come to the public markets. In past years I have talked about the challenges the public markets in Canada have had in attracting technology companies. These types of companies have often elected to raise their capital from private equity and venture capital firms as opposed to seeking a public market listing.
The fintech and blockchain space seems to have taken on a different dynamic, as these companies are in fact coming into the public markets, and to be fair it is probably a result of the capabilities demonstrated by the public markets in funding the cannabis space. Entrepreneurs in the fintech and blockchain space look at the public markets and acknowledge that we were able to back the creation of an entirely new industry with significant amounts of capital at competitive costs vis-a-vis private alternatives.
As far as the CSE goes, we are very much interested in looking at the potential to apply new technologies to reduce cost and risk. We have a number of experts looking at smart contracts and in effect tokenizing a security with a view to a potential listing on the exchange. We are going to have more to say about that in the very near future and are looking carefully at the potential to adopt a number of those technologies.
I will say that our systems developers have deep experience in the space and as a result we do have some excellent partnerships already developed that will give us a real leg up if we choose to become early adopters. Back to top
Enhanced disclosure: A better model for investors and companies
PM: One of your competitors suggested recently that the CSE’s suitability standards for officers and directors might be too lenient. What would you say to this opinion? And what about disclosure of issuers listed on the CSE in general?
RC: To be blunt, I was confused by that statement. I have no idea what that person was referring to. The rules in place for suitability for officers and directors are essentially identical across all exchanges operating in Canada, whether it be the NEO Exchange, the CSE, the Venture Exchange or the Toronto Stock Exchange. The spokesperson from the Toronto Stock Exchange would have no idea what our policies and procedures are in administering the rules. We can, and do with some regularity, exercise our discretion to prevent individuals being involved with particular companies. I think that was not an informed opinion being voiced by the spokesperson from the TMX Group.
The CSE believes that in return for the exchange not being as involved in a company’s decisions as perhaps other exchanges are in Canada, the company must agree to adhere to higher disclosure standards.
In addition to the work we do on a company’s initial listing statement, as well as their legal obligations to provide continuous disclosure, companies are required to file monthly reports that are effectively an update to the Management’s and Discussion and Analysis from the listing statement or prospectus. Companies find that it is a helpful part of their investor relations activities, and not a burdensome extra piece of exchange regulation.
That disclosure record builds for the companies and it is easy for people to see which companies are executing against the plan they set out, and which companies are not making the progress they set for themselves in their business plan. Back to top
Regulatory outlook for cannabis-related businesses
PM: There was a degree of controversy this year about Canadian stock exchanges listing companies that operate cannabis-related businesses in the United States. Can you comment on the CSE’s policies and how your regulatory model held up in the face of this debate? Do you foresee policy at the CSE changing at all in 2018?
RC: The answer to the latter question is that I do not see our policies changing. We may learn things as time goes on from the legal position in the United States, but this to us was a relatively straightforward call.
The basic principle is that all companies listing on the Canadian Securities Exchange, and for that matter any exchange in Canada, must provide a positive representation that they are operating in accordance with applicable law in the jurisdictions in which they conduct business.
To that end, and particularly with companies in the cannabis space in the United States, we can and do require the company to provide a legal opinion and analysis demonstrating how it is that they are operating in accordance with the licensing regime in place in the particular state or states in which they do business.
From an investor’s perspective, clearly there are risks in investing in these companies given the uncertainties in the legal framework in the United States. That is why companies who have come to us with US exposure, either in the listing statement or in a prospectus cleared with one of the provincial regulators, must spend a lot of time explaining the legal position of the company, and what the position of the company would be assuming various changes took place. Investors need to know what the impact on the company would be if the rules changed in the US.
This was formalized by the Canadian Securities Administrators in a guidance notice a couple of months back and it’s an approach, because it’s based on disclosure, that is entirely in line with the one we’ve taken to these companies coming into the public markets.
So, again, we see that there is considerable investor interest in these opportunities, there is considerable interest from entrepreneurs based in the United States to raise growth capital from the Canadian public markets, and we expect to see more of these companies, not fewer, coming to us in the months ahead. Back to top
Strength behind the bench at the CSE
PM: The CSE’s largest shareholder is Urbana Corporation, which holds just under half of your common equity. This is different to the other major Canadian exchange groups, which often have a wider base of shareholders. Is there a benefit to having a concentrated ownership structure and, presumably, the relative independence it provides for?
RC: I don’t know if I can speak to the benefits of having a relatively concentrated shareholding. What I can speak to is the benefit of having Urbana Corporation as our principal shareholder, and that of course is that Urbana made its name some years ago for its successful investments in the exchange space, not just in Canada but around the world.
The team there, led by Tom Caldwell, who is also our chairman, is regarded as one of the most knowledgeable there is when it comes to the business of exchanges. Tom has access to many different types of people in the industry. Whether it be senior management at other exchanges or analysts and investment bankers, they all know Tom and if we need to meet these people, the opportunity is there because of our chairman and Urbana Corporation.
I believe we are very fortunate to have an engaged, supportive and extremely knowledgeable main shareholder. We really couldn’t have wished for anything more. Back to top
Hitting its stride as a full-service stock exchange
PM: In some respects, the CSE is fighting a two-front war with other exchanges, both in attracting exciting young companies and in retaining your maturing issuers. Do you think it makes sense for companies to leave the CSE if they qualify for a “senior” exchange? Conversely, does the CSE still maintain its advantages as an exchange suited for early-stage companies? Can you realistically cater to both?
RC: Branding is obviously extremely important in the exchange world, and probably more than I understood when I became CEO. There is very little difference in what we do versus the so-called senior exchanges. The access that we provide, the systems that we deploy, the rules governing the companies and so on – there is an awful lot of commonality among us.
However, some institutional investors and retail investors believe, for some reason, that these senior markets will provide higher multiples, better liquidity, more access to investors both in Canada and internationally, and a better experience for the issuer.
I think that is a very difficult proposition to support, especially on a cost-benefit basis, when somebody looks at the increased costs of being, for example, on the Toronto Stock Exchange versus the Canadian Securities Exchange. It would be difficult to justify on an objective basis in a lot of cases.
The one area that really is one of the last mountains for us to climb as an organization is the institutional investment community in Canada. Some institutions have hard-coded into their mandate the requirement that a public equity in the portfolio must be listed on one of the TMX Group exchanges, or specifically on the TSX. They don’t mention the Canadian Securities Exchange and they don’t mention the NEO Exchange.
When we hear from a company that an interested investor has said they would invest in them but for the fact they were listed on the CSE, those are barriers that we need to continue to work to knock down. That is not just perception but a genuine issue that exists.
Our challenge as an organization is to try to reduce the number of institutions with those restrictions in their investment mandates. Our goal is to provide an identical or better experience than the other exchanges, where companies are going to pay considerably more for the privilege of being listed.
One other concern is that if a company believes it is on its way to joining one of the major indices on the Toronto Stock Exchange, there is a rule that to be in the long-established national indices, those stocks have to be listed on the Toronto Stock Exchange. It is sort of like back in the day on the S&P 500 when you had to be listed on the New York Stock Exchange. And as a result, companies such as Microsoft and Apple and Cisco and Intel didn’t qualify for the S&P 500 for a number of years because they were on Nasdaq. Eventually it got to the point where S&P had to do the right thing and permit companies from exchanges other than the NYSE into the index.
Our goal is to have companies stay on the CSE and get big enough and relevant enough to the broader market that people lean on the S&P and TSX to allow them into the indices. I think we may have our first billion-dollar company relatively soon, and with that achievement we might then have investors lobbying Standard and Poor’s to change the rules.
CSE had the pleasure and honour of visiting the beautiful country of Israel from November 5th to 10th. The visit was a collaboration between CSE, OTC Markets, and OTC Israel. Also joining CSE on the trip were Bernard Pinsky of Clark Wilson LLP, and David Danziger of MNP LLP.
One of the primary goals of the visit was to connect with the Israeli business community and gain a deeper understanding of the capital markets needs of their world-class medical and technology startup ecosystem.
On the docket for this trip were meetings with local business influencers including funders, law firms, accountants, and advisors. Within just a few interactions, however, it became readily apparent that there was a high degree of alignment between the Israeli start-up ecosystem and the Canadian capital markets. The ability of the CSE to serve as a conduit for North American public venture capital was a message that resonated throughout many of the interactions during the visit.
Nowhere was this more evident than at the “Raising Capital and Taking your Company Public in North America” session which attracted a full room of technology company operators and various professional advisors. Engagement during the event was extremely encouraging and the wealth of follow-up and follow-on interest has set the stage for continued efforts to explore building bridges in the future.
However, the most encouraging insight from the trip was the demonstration of intellect and inspiration driving many of the projects that we had the pleasure of reviewing. As the Exchange for Entrepreneurs, it was clear to the CSE team that the entrepreneurial spirit and drive were thriving in Israel’s startup communities and these were also responsible for advancing many of the projects we reviewed.
Whether it was an innovative application of cannabis oils, crowdsourced intelligence and collaboration using SAAS, or surgical implants, there was no shortage of innovation on display during our short stay.
CSE looks forward to its next visit to Israel which will undoubtedly occur in the very near future. We look forward to continuing to build bridges with the “Startup Nation” and are once again appreciative of the positive response and hospitality shown during our visit.
To view more pictures and highlights from our visit, click here.
EnviroLeach Technologies (CSE:ETI) is shaking up the mining industry by offering an environmentally friendly alternative to widely used toxic methods of extracting gold from ores and electronic waste.
Many miners rely on cyanide and acid based leaching to recover precious metals from ores, concentrates and electronic waste. More than 76% of all gold is produced via hydrometallurgical extraction that utilizes cyanide.
While cyanide is an effective extraction medium due to its high gold recoveries and low cost, it is also potentially deadly to humans as well as fish, birds and other wildlife if used incorrectly.
EnviroLeach is trying to change this by producing a non-cyanide, non-acid based formula that is not only eco-friendly but actually contains food-grade additives that are fit for human consumption as nutritional supplements and medicines, including the treatment of some cancers.
Chief Executive Officer Duane Nelson says the formula is mixed with tap water so you can “effectively drink it” before the solution is chemically altered using electrical currents passing through diamond based electrodes supplied by De Beers.
“We’re really the only company that offers any type of environmentally friendly solution for the recovery of metals for both the mining and e-waste sectors,” Nelson says.
EnviroLeach has proven in recent tests that along with being better for the environment, its formula is also just as effective as cyanide leaching for ores and concentrates, and hot acid solutions for e-waste.
During seven months of extensive hydrometallurgical tests of its formula on electronic waste, the company achieved gold recoveries of over 90% in periods of less than two hours.
Electronic waste, or e-waste, includes devices such as mobile phones, TVs and computer components that are thought to contain as much as 7% of the world’s gold.
EnviroLeach found that when it tested its formula on e-waste – specifically printed circuit board assemblies (PCBA) used in electronic devices – it provided similar leach kinetics to conventional acid based extraction methods.
In contrast to current cyanide and acid based extraction, the study found the EnviroLeach reagent was safer to handle and functioned just as effectively at low temperatures and near neutral pH levels.
The formula is also cost-effective because it can be reused. “Not only does it offer an environmentally friendly solution but it offers a sustainable solution,” Nelson says.
The company has caught the attention of more than 140 mining firms, manufacturers and recyclers of electronics in more than 17 different countries.
While he wouldn’t name any names, Nelson states the group is in talks with some large clients in mining and some of the biggest manufacturers in e-waste.
“Everybody that we talk to is very excited by this technology,” he says. “In the mining sector, there’s been such a lack of innovation. This is the most exciting innovation since the advent of cyanide.”
EnviroLeach, spun out of Iberian Minerals in December 2016, has started construction of a 10 tonne per day e-waste processing plant with Mineworx Technologies. It will have initial annual capacity of 2,500 tonnes of PCBAs, making it the largest and most environmentally friendly chemistry-based e-waste processing facility in North America.
The plant, which is expected to be completed by the end of Q4 2017, will handle all aspects of the e-waste recycling process, including material pre-treatment, shredding, grinding, leaching and metal extraction.
Operating costs, capital costs, development timelines and permitting procedures are expected to be much lower than those associated with a typical mining project.
EnviroLeach believes e-waste recycling will play a significant role in the coming decade as the volume of electronic products going into landfills continues to grow at a worrying rate.
“Apple, Microsoft, DELL, CISCO and others are all looking for environmentally responsible recycling alternatives for their components,” Nelson says.
The company sees a continued rise in demand for gold in electronics as the number of mines is limited, the costs are higher, and the mines are often located in challenging political and geographic locations. Nelson says that by using the company’s formula, miners will also be able to set up shop in areas that are prohibited from using cyanide.
He also believes urban mining provides tremendous opportunity. “Previously, the only way to get gold out of e-waste was to put it into a smelter or use hot acid solutions, which is not cost effective. It’s not sustainable, and not healthy for the environment,” Nelson explains.