At the Canadian Securities Exchange, we pride ourselves on being the exchange of choice for entrepreneurs from a range of industries around the world. The growing international demand for deep expertise in public venture capital, especially in areas like mining, cannabis and technology, are part of the reason why members from our team recently travelled to meet with entrepreneurs in Israel and Australia.
Israel: Connecting with Entrepreneurs
The CSE’s most recent trip to Israel in November is the continuation of more than five years of visits. Mark Francis, the CSE’s Senior Advisor of Listings Development for Western Canada, sought to strengthen key relationships and further the CSE’s interests in the region.
With an economy that encourages and nurtures entrepreneurship, especially at the growth stage, Israel offers a vibrant start-up environment. That said, according to sentiment on the ground, investment funding tends to skew towards bigger companies, which means growth-stage firms may need to look further afield for venture capital.
Fortunately, Canada – and the CSE in particular – are appealing to Israeli entrepreneurs because of our streamlined small-cap regulatory environment, strong company disclosure framework, large volumes of small-caps driving expertise, and integration with the US capital markets. Additionally, Mark noted that many Israeli entrepreneurs were quite open to sharing ownership with experts and investors who have a broad cross-section of skill sets in order to accelerate getting deals done.
Australia: A Mining Powerhouse
With mutual interests and expertise in mining, a history of Canadian companies listing in Australia and vice versa, Canada represents an important pool of investment capital for early-stage Australian mining companies.
The seemingly natural fit between these two global mining powerhouses is what motivated CSE’s Director of Listings Development for Western Canada Anna Serin to connect with entrepreneurs and various capital markets stakeholders at several mining-focused investment conferences in Australia this past November.
From Perth to Sydney to Melbourne to Noosa, Anna had the opportunity to meet with issuers, investors, and miners on their home court. Whether it was at the International Mining and Resources Conference (IMARC), the Noosa Mining Investor Conference, as well as at other local meetups, it was clear that there are opportunities for the CSE and Australian-domiciled companies to consider pursuing in the future.
What stood out to Anna during her time in Australia was the energy level around mining. In particular, the level of enthusiasm among attendees of mining events as well as the ease with which one could network, made these events as enjoyable as they were valuable.
Of course, one big topic of discussion and focus was lithium. Undoubtedly, this theme, as well as the conversation on how to raise capital in the current environment will continue to be topical in the upcoming slate of mining conferences here in Canada.
Continuing to Push Globally
Despite journeying to very different markets, the entrepreneurial spirit among early-stage companies is remarkably similar around the world. The combination of a tenacity to grow as well as the desire for accessible public venture capital mean that entrepreneurs across the globe are increasingly looking to the Canadian Securities Exchange as a destination to write the next chapter in their respective growth stories. And, we are undoubtedly happy to welcome them.
As 2022 winds down, the CSE team will be taking a well-deserved break from travelling. We look forward to hitting the road — and skies — again in 2023 and are especially excited to see our friends, old and new at events throughout the next year.
By Richard Carleton, CEO of the Canadian Securities Exchange
One of the very best aspects of the Canadian capital markets is our ability to provide funding to early-stage companies. With a successful history of financing mining and oil and gas exploration, the industry has applied its skills in more recent years to support innovation in a broad range of sectors such as technology and life sciences. This has resulted in notable recent success for companies in the legal cannabis sector.
Canada is a world leader in the provision of capital to companies from around the world in these fast-growing new industries. Recent investment themes include the development of medical applications for the treatment of mental health issues with psychedelic compounds, and backing for the rise of cryptocurrencies and supporting technologies that are driving efficiencies in the payments sphere and the provision of financial services.
As with any industry, competition in the provision of stock exchange services in Canada have benefited issuer companies and investors alike.
The Canadian Securities Exchange (CSE) launched 18 years ago with a mission to provide public issuers with a streamlined, lower-cost alternative to the Toronto Stock Exchange and TSX Venture Exchange. We succeeded. The CSE is now home to more than 700 active listings and has attracted more global issuers of greater size and maturity over the last few years than at any other point in its history.
Greater competition, including other new exchanges launched after the CSE, has clearly benefited Canada’s investment community, as well as the companies and investors that it serves.
That said, we can and should be doing a much better job of enabling competition in the provision of exchange services to companies, brokers, and investors. Here are a few examples of the challenges faced by new entrants, and some potential solutions.
Market Data
In the United States, an industry consortium collects and processes real-time market information from the stock exchanges and then provides access to the data for all the securities listed on each exchange (Nasdaq, NYSE and NYSE American) for a single fee. In other words, regardless of where a particular security trades, and at last count there were 16 venues, an interested investor can “see” every trade and current quotation.
This is not the case in Canada. In an environment where almost half of the trading in TSX and TSX Venture Exchange stocks occurs on different marketplaces, investors are forced to deal with the venues individually to see the full picture. Many people, who either don’t understand our convoluted market structure, or do not want to pay these separate fees, opt to take the data from the incumbent exchange only. This leads to a series of issues:
When trading is disrupted for any reason on the TMX Group exchanges, Canadian liquidity dries up precipitously. In the United States, when the major exchanges have technical issues, the other markets pick up the slack without missing a beat. Canadian markets are not nearly as resilient as they could be.
With large segments of the industry not having access to meaningful market data, and this group includes the professional retail advisors at the national investment dealers, the lack of transparency does little to enhance confidence in the functioning of Canada’s stock markets. People naturally assume that if they can’t see trading activity, that something unwholesome is going on. This lack of transparency breeds a lack of confidence in the operation of the markets.
Index Membership
I again refer to the experience of exchange competition in the United States. The tech giants we now know so well were essentially forced to go public on Nasdaq, because NYSE’s listings qualification rules during the 1970s and 80s required a company to have significant tangible assets. In other words, the exchange didn’t give credit to the important intellectual property assets held by the rising technology sector.
This subtle form of discrimination extended to membership in the benchmark US indices such as the S&P 500 and the Dow Jones Industrial Average: companies were required to be listed on the NYSE to be eligible for inclusion in these indices. It took many years of pressure from users of the indices to spur the index providers into changing their criteria.
We find ourselves in the same situation in Canada years later. The S&P/TSX indices, with hundreds of billions of investment dollars measured against these benchmarks, require a listing on one of the TMX Group exchanges for a company to be eligible for inclusion.
This has distorted the market in a variety of ways: companies that have grown to a size warranting consideration for inclusion in one of the S&P/TSX indices have left, unwillingly, a competitor exchange to move to the Toronto Stock Exchange. Make no mistake, the possibility of index membership is attractive to prospective listed companies.
Eliminating the requirement that a company be listed on a TMX Group exchange in order to be included in one of Canada’s benchmark indices will enhance competition in our space.
The Peculiar Meaning of “Venture Issuer”
This issue is perhaps the most subtle, yet wide ranging barrier to better competition in the stock exchange industry. Let me start with a bit of background. To promote a framework where it is cost effective for small companies to go public, regulators have created two sets of requirements for public companies: those set out in the provincial securities acts with rules for governance and reporting for larger, more mature companies, and a less prescriptive set of rules designed for so-called “Venture Issuers.”
Unfortunately, instead of identifying which public companies are “Venture Issuers” based on objective measures like market capitalization, revenues, assets or other objective measures, the framework instead defines them as issuers listed on the TSX Venture Exchange and the Canadian Securities Exchange.
This system worked reasonably well during the early stages of exchange competition in Canada. When smaller public companies reached a certain level of success on the TSX-V or CSE, they would typically move their listing to the TSX or a US exchange. At that point, they would shed the “Venture” label and be re-classified as “Issuers” for the purposes of their disclosure and governance rules.
This labelling is extremely important because “Issuers” and “Venture Issuers” are not treated equally in the investment ecosystem:
CSE-listed “Venture Issuers” are not eligible for margin relief under the rules of the Investment Industry Regulatory Organization of Canada. This means that CSE-listed companies are not permissible in client margin accounts; securities of these issuers in dealer inventory are carried at full value against the firm’s regulatory capital. This measure increases the cost of financing for these issuers and can keep some dealers out of the space altogether.
Investment mandates from institutional investors may not permit these asset managers to purchase the securities of “Venture Issuers,” narrowing the range of capital available for promising early-stage companies and even some larger issuers listed on the “wrong” exchange.
Some international index providers will not consider “Venture Issuers” for inclusion in their indices, denying companies exposure to investors and frustrating a company’s attempts to increase the range of investors in their company’s securities.
Thanks to the CSE’s recent success in attracting and retaining larger issuers, particularly in the global cannabis sector, the “normal” evolution of successful companies jumping from the CSE to the TSX has broken down. The CSE is now established as a credible home for larger, more advanced companies, which are using their CSE listings to raise serious amounts of money. The total capital raised by CSE issuers last year exceeded $6 billion, compared to about $0.5 billion in 2016. Last year’s total has already been exceeded this year. Liquidity measures also show the CSE in a superior light to the TSX-V and NEO exchanges and have exceeded the measures produced by the TSX itself for significant periods of time over the last few years.
While we are delighted that larger issuers are choosing to make the CSE their home over the longer term, the “Venture Issuer” status has become a real problem. These larger CSE-listed companies, some of which have market capitalizations in the billions of dollars, are at a significant disadvantage to comparable companies on rival exchanges that are eligible for margin relief and the other benefits I outlined above.
We could wait for the various regulators to address the competitive imbalance, but true to our nature as disruptors in the marketplace, we are tackling these problems head on.
We are in the long process of rewriting our listing policies to create two tracks for companies listed on the CSE: one for “Venture Issuers” and another for more mature companies. Under the new rules most companies will remain “Venture Issuers.” The larger and more advanced companies will, however, get reclassified, allowing them to (hopefully) enjoy the same benefits as “Issuers” on the TSX. Accordingly, they will be formally subject to a more prescriptive corporate governance regime that mirrors the policies set out for existing “Issuers” under securities law and related exchange rules.
The entire investment community should support our proposal. It is simply a matter of fairness and common sense. By addressing regulations that should have been dealt with years ago, we can enhance the competitive landscape for issuers and investors in Canada and ensure a strong and vibrant capital formation ecosystem well into the future.
CEO Richard Carleton was pleased to sit down with Greg Hasty from Highly Capitalized during MJBizCon Las Vegas to discuss the CSE’s position in the global cannabis space, how the industry as a whole is maturing, as well as M&A activity and brand building among US cannabis MSOs. Read the transcript of the interview below.
Greg Hasty:
Hey everyone. Welcome back to our continuous coverage of MJBizCon 2021. I’m Greg Hasty here in downtown LA at the HCN studios. And I have the pleasure of being joined by Richard Carleton, the CEO of the Canadian Securities Exchange. Richard, how are you doing?
Richard Carleton:
I’m doing well. Thanks Greg. Pleasure to be back at MJBiz in Las Vegas after a couple of years off.
Greg Hasty:
Absolutely. I’m very jealous. I’m already envious of you being on the floor while I’m stuck back here in the studio in LA, but great to see you again. Great to connect with you again.
Lots of changes, lots to talk about since the pandemic hit, but not all of them negative. Some really, really good developments in cannabis and adjacent markets. Tell us a little bit about what’s exciting you. What are you pumped about coming out of 2021?
Richard Carleton:
I think for people who don’t know who the Canadian Securities Exchange is, just a bit of a backstory, we made the fateful decision about five years ago to not just list companies from Canada in the cannabis space, but to begin to work with the industry in the US as well. And we really became the partner for the US multi-state operators to access public capital in Canada, and the United States as well. And all of the significant MSO operators who are public now are listed on the Canadian Securities Exchange.
We have roughly 160 odd companies in the cannabis space on the exchange overall. And it’s a significant percentage of our market capitalization, and daily trading turnover. From that strength, we have levered that position in the industry to work with companies from Latin America, South America, the Middle East, in particular, Israel, as well as Asia.
So we’ve really achieved a lot for a small Canadian startup. We’re now 20 years old, in a significant position in the cannabis finance space globally. So it’s been a wild ride up to the pandemic. And of course, we all had some uncertainty in the early days. And broader markets were certainly under extreme stress. But then by June, things had recovered dramatically, not just in the broader market, but in the cannabis market specifically when it became obvious that consumers were in fact rotating their purchases in the cannabis space and really supporting the industry in a big way.
And so, as the companies reported ever-improving results in Canada and the United States, increasing sales and moving towards profitability, that’s opened up a whole new range of opportunities for these companies to raise more capital and to begin to think about planting the flag in new states and new jurisdictions, and expanding their businesses organically.
Greg Hasty:
Absolutely. And I just love the journey that you’ve been on. I’ve been following you for at least six or seven years now and I remember even in my earliest interviews, people talking about getting involved with the CSE and how the CSE is really helping them get out there. And you really were the launchpad organization for so many businesses in the US, let alone businesses in Canada itself.
So talk to me a little bit about the current state of MSOs and Canadian businesses as well. There’s a lot of activity. M&A is a big thing right now. Tell us about the market shift and what trends you’re seeing.
Richard Carleton:
I think the important driver across the board here is a decreasing cost of capital for the large Canadian LPs and the US multi-state operators, with the number of opportunities that are opening up in new jurisdictions in the United States. We obviously have the tri-state area on the east coast. Michigan is obviously developing jurisdiction, Pennsylvania’s developing, maybe Ohio at some point in the not too distant future. They’re even talking about medical in Texas.
So there’s still tremendous opportunities for growth in the US markets, specifically. All told, I think it’s about a hundred billion a year between the illicit and the legal markets in the US now. So we know that there’s an enormous addressable opportunity for the operators to take advantage of, and they are. What we have seen is that companies from the US space, through the CSE, have raised more than $4 billion on a year-to-date basis.
That money is pretty much earmarked for mergers and acquisitions activity, as well as to build out in some of the states where they’re currently already operating. And again, there’s a significant cost of capital advantage. We’ve seen debt capital raised by a number of these companies that are now down in the single digits from a coupon perspective.
A year or two ago, companies were looking at 15% interest on debt. We saw last week an issuer raised debt at a 7% coupon. And the difference, of course, is that they have cash flows to secure that debt financing against, and so, the cost of capital has come down. They will use those advantages, as I say, to be very active in mergers and acquisitions activity, and they will continue to expand their footprint in the United States in particular.
Greg Hasty:
Do you see any difference in how MSOs are approaching M&A activity compared to what they were doing pre-pandemic? We saw a lot of MSOs build themselves up. And sometimes, it was a little “cart before the horse” in a lot of cases, and sometimes they would tackle almost too much in activity.
Are you finding that these MSOs that you’re working with and have partnerships with are being a little bit more strategic in their approaches? What’s kind of top of mind for them right now when they’re looking at different M&A opportunities?
Richard Carleton:
I think we understand well now where the value in the chain is highest. With cultivation assets, I think this is what you were saying was a big focus of investment in the early stages. And we now see over-capacity in a variety of regions in the United States, particularly California. Clearly that’s not going to be a source of margin for these companies moving forward.
It’s all about building brands, rationalizing your supply chain, and getting more and more product on the shelves, whether you own the dispensary, or through license agreements or agreements with recognized retailers, to get your high margin products in the hands of consumers. And I think that’s a sign of the increasing maturity of the industry, and understanding where future revenue and margin growth is going to come from.
Greg Hasty:
I’m personally really excited by that as a marketing and branding guy, to see people focus on consumer experience, on brand loyalty, on proper brand stewardship in cannabis, and not just cannabis-adjacent markets. You have psychedelics that are coming online. You even have technology companies that are now focused on the consumer experience and quality and stuff like that. So it’s really nice to see that maturity come into the industry, and it sounds like it’s just going to be more and more of a benefit for our partners moving forward.
Richard Carleton:
That’s absolutely right. And when we look at, for example, the Canadian LPs, they have real challenges in building brands because of the marketing and advertising restrictions that are placed on those companies.
That’s actually why you see the Canadian LPs wanting to invest into the US business lines, because that is where you’re able to develop those brands, and build consumer loyalty. Because again, this isn’t really the same as any other consumer packaged goods where you’re trying to build a brand from scratch because you know there’s an addressable market. You’re trying to win back share from the illicit market.
And so to do that, to command a bigger and bigger share of that brand loyalty and a successful consumer experience, it’s obviously going to be absolutely critical in winning that share.
Greg Hasty:
Wonderful. Well, Richard, I really appreciate your time. I love chatting with you. We can go so much deeper in the flow of the markets, but what’s wonderful about cannabis is that it’s always exciting and there’s always something going on. So every time we talk it’s a new and amazing adventure. But that being said, the trend of maturity keeps going. Seeing these markets come online stronger, seeing these companies come back stronger is such an exciting thing. But thank you again, Richard, I love the chance to talk with you, and I hope you enjoy your time on the floor. Always make sure to check out the Canadian Securities Exchange on their website, and Richard, I believe you also have CSE TV, which is your social media outlet, correct?
Richard Carleton:
That’s correct. That’s our YouTube channel. We encourage everybody to subscribe. Through the pandemic, we’ve been doing a lot of our shareholder and company education through the medium of YouTube, as well as LinkedIn and Twitter and Facebook and so on. But we really like YouTube.
Greg Hasty:
Beautiful. So make sure to go on YouTube, check out CSE TV. Really great quality content. And they’ve really put in the work, especially over the pandemic. Richard, thank you again. It was great to see you. Make sure to also check us out on highlycapitalized.com to stay up to date on today’s events and all the interviews you may have missed, as well as the upcoming interviews. And make sure to follow us on LinkedIn and Facebook to stay up to date on our broader services. We’ll be right back. Stay tuned. See you for the next interview.
Stock markets around the world continued to enjoy high levels of investor participation and buoyant prices in the first half of 2021. How happy are you with the first six months of the year, and what were some of the highlights in terms of issuer accomplishments and milestones achieved by the CSE team?
We are delighted with what we have experienced in the first six months of 2021. First and foremost, the CSE team continues to perform at a very high level, notwithstanding the ongoing impact of the pandemic on day-to-day operations at our offices in Vancouver and Toronto, plus our team members in Calgary, Montreal and elsewhere.
What I’m particularly proud of is just how well the team has pulled together and continued to maintain a high level of service for the trading, listing and market data operations of the exchange.
One noteworthy trend we are seeing is a steady rise in retail trading activity. The first quarter of 2021 brought record levels of turnover for the CSE, and indeed for the broader Canadian public equities market. This is also the case throughout North America, and there has been a particular focus on smaller capitalization stocks. Things calmed down somewhat from April but we are operating well ahead of our targets for the year.
Speaking with my colleagues, and particularly those in the discount brokerage industry, there has been a significant demographic shift in who is opening brokerage accounts these days. In Canada, a record number of new accounts were opened last year, and they tended to be opened by people in the 20 to 40 demographic, many of whom were investing in the stock market for the first time.
Like their parents, they buy bank stocks and other large-cap Canadian and US equities. But they’re also interested in sectors where the CSE is particularly strong – cannabis, psychedelics, e-gaming, blockchain and cryptocurrency-related securities, as well as health tech, which obviously is an industry sector that has been in focus. And, of course, the mining industry, whether it’s precious metals exploration companies, because of the strength in gold and silver, or the “green” metals, such as copper, with the continued electrification of economies around the world. We’ve welcomed many new companies to the Canadian Securities Exchange over the last five years in all of these categories.
One of the other important developments is a significant rebound in valuations for US cannabis companies listed on the Canadian Securities Exchange. That has two principal outcomes for us. One is that existing issuers have been successful in raising additional capital. In January, we saw a record amount of capital raised by our issuers, totaling well over $1 billion. The majority of that was cannabis issuers raising money to fund acquisitions or expand operations organically, as more and more US states legalize cannabis for medical and recreational purposes.
The other is that we saw a number of cannabis companies come to the CSE that had opted to remain private until they saw this rebound in valuations. We’ve had some very meaningful companies join the exchange in the last little while from the United States.
As you just highlighted, it is not uncommon for CSE issuers to collectively raise $1 billion or more in a single month. What new financing developments or trends are you seeing at the moment? Are there any industry sectors, capital sources or modes of financing that stand out?
I just touched on some of these, but one of the trends we saw beginning to build in 2020, which has reinforced itself in 2021, is a lot more prospectuses being filed than before. Instead of going public by way of a fundamental business change or a reverse takeover, we are increasingly seeing the traditional IPO selected as the preferred means. That’s a positive trend because companies come to market with what tends to be better distribution of their securities, a larger shareholder base, and a shareholder base that is actually invested in that specific story. Post-listing price performance also tends to be a little better than for companies that come to market by way of RTO.
Similarly, existing issuers are raising large amounts of new capital, and instead of being done by way of private placement – although the private placement is still an important means of sourcing funds – we are seeing issuers file shelf prospectuses to facilitate broader distribution for their transactions. That is a very positive development because when shares are qualified under a prospectus, they are free trading immediately, and that tends to enhance the liquidity profile of the company.
Work to establish a senior market tier for larger issuers is moving forward. What is the status in terms of steps left and an approximate timeline? Also, what benefits will the senior tier bring for issuers on the CSE?
This project has been progressing for a while and involves not only creation of a senior tier but also the first significant rewrite of the rulebook for the CSE’s small-cap issuers. We’ve been working for a number of months with our regulators in British Columbia and Ontario on the provisions and are close to publishing our proposals for public comment. The comment period will likely last for 45 days and we’ll be seeking input from interested individuals, law firms, accounting firms, investment banks and, of course, our issuers. We look forward to having these new provisions in place ideally at some point in the fall.
With regard to benefits for the companies in the senior tier, there are a number of them. I’ve spoken in the past about eligibility for margin relief under IIROC rules. It will be up to each dealer to decide if they will recognize margin eligibility for a particular security on the basis of price history and volatility.
It also influences dealer capital structure, because dealers who have securities in inventory that aren’t margin-eligible have to maintain a capital reserve against them that’s one hundred cents on the dollar. They get relief from that requirement if the securities are margin-eligible; that reduces the cost of financing during a bought deal, for example.
We’ll be working with the index providers to ensure that companies are eligible for inclusion in Canadian and US indices by providers such as MSCI and FTSE. And we’ll be looking at rules around eligibility for individual stock options. A number of companies in the senior tier would meet the Canadian Derivatives Clearing Corporation minimum standards – exceed them by a good measure, in fact – for market capitalization and liquidity to have single-stock options trade in relation to their shares. That has the potential to improve liquidity in the cash market, and again is just part of the growth of the Canadian Securities Exchange and the companies listed with us.
What will the benefits of a CSE senior tier be for investors?
For investors, what we hope ultimately to see is the opportunity for lower costs. We are building toward a time when people will be able to have these stocks in a margin account, though, as I say, it is up to each individual investment dealer as to whether they will permit that or not. But at least it will create that possibility.
We also think a senior tier can attract additional institutional investors so that CSE issuers see even better liquidity, broader interest and more analyst coverage. It really is us moving forward alongside our issuers.
The CSE welcomed some new members to its board of directors in the second half of 2020, and you’ve added to other parts of the team as well. Is there anything new from a policies or capabilities perspective you’d like to highlight?
Our work continues on delivery of a full lifecycle of services for tokenized securities and to this end we’ve made a series of investments and established a variety of partnerships. We’ve had very productive meetings with regulators recently which give me a high degree of optimism that we are on the right track.
To recount the specific benefits, it is really a situation where everyone has the chance to win. We look to make a significant dent in clearing costs for investment dealers. For investors, we look to bring new categories of asset classes into the public market as investments, and in particular we think a number of these could be income-producing investments.
Most importantly for issuers, we believe we can reduce their cost of capital. I’ve spoken in the past about the opportunity to have mining royalties brought to a public market, which has the potential to dramatically cut the cost of capital for an issuer. It’s an alternative to entering into private equity arrangements with one of the handful of institutions around the world that provides that kind of financing.
We are also very much looking at our market structure, which you can think of as the plumbing for our equity trading system, with particular importance on the need of dealers to cut their cost of managing buy and sell orders for CSE listed companies.
The explosion of activity and support we’ve had for our market in the latter part of 2020 and into 2021 has had a meaningful impact on the operations and cost structure of a number of discount brokers. For example, you will see very shortly that we are making progress with Wealthsimple in adding securities to their commission-free program. This is something we have had to work on quite carefully with Wealthsimple to ensure they can do this on a cost-effective basis. There is a lot going on and the team is going to be very busy throughout the rest of the year.
The CSE undertook some major awareness initiatives in the first half of 2021. The Cannabis Investor Series was broadcast each week during the month of May and followed successful multipart series on health tech and plant proteins. Talk about the benefits and what comes next.
It’s really two-fold. The first is that we obviously want to be seen as a trusted source of information for investors in particular market segments. And because of the relationships we have with thought leaders and entrepreneurs, we have the opportunity to pull together some very compelling content and fill investor needs for more information about these particular industry sectors.
The other side of these series is developing closer working relationships with the executive management teams of the issuers and prospective issuers and thought leaders in different industries. There is no substitute for a personal relationship when you are looking to overcome hurdles and build more business or attract additional listings, and the same goes for further establishing the reputation of the Canadian Securities Exchange as a trusted provider of listing services to the entrepreneurial community.
It is great to have an opportunity to provide that education and more information for investors, but we also enjoy the opportunity to work very closely with existing issuers and potential issuers.
Continuing to build the roster of issuers from overseas and make foreign capital aware of CSE companies is important for your team. Talk about related plans, and why companies outside of Canada should consider a CSE listing.
We’ve all been working from home for a year and a half but when we are finally able to travel again we will do so extensively. In the meantime, we have been leveraging various communications technologies to work with different industries in different parts of the world.
Clearly, in the cannabis space we carved out a great reputation – first by working with the industry in Canada, and then to share in the growth of the industry in the United States. And because of that we attracted entrepreneurs from Israel, from South America, from Asia, from Europe, and it has cemented our reputation as the go-to place for entrepreneurial capital for the cannabis industry globally.
Because many of the issuers were backed by funds that are also prepared, for example, to look at investments in the psychedelics space, we are seeing companies in new sectors come to the CSE from beyond Canada and the United States looking to source Canadian public capital.
I’d also highlight the renewed interest in mining. Mining was our largest source of new issuers in 2020 and that trend has continued into 2021. It is one of the strongest, if not the strongest, individual sectors for us in terms of new listings. Interestingly, we are seeing a lot of interest from Australia. The Australian mining industry has a tradition of raising some of its capital in Canada, though historically it’s a bit more aligned with the capital markets in London.
What we are seeing now is junior exploration companies from Australia more seriously considering Canada as a potential source of capital, in part because the Canadian capital markets are well equipped to service exploration companies of all kinds. As a Canadian reporting issuer you also have access to the United States through various prospectus exemptions that are hard-coded into the Securities Act in the US, as well as the opportunity to build a US shareholder base and US liquidity, that may include a quotation with the OTC Markets Group.
When we talk to issuers from outside of Canada who are looking at Canadian markets, the key thing is the expertise of the entire ecosystem for early-stage companies. The CSE facilitates access to those markets in Canada but also the ability to bring in investors from the United States and beyond. It really is a very powerful proposition compared with private equity alternatives or go-public transactions in countries where costs may be high and asset valuation and liquidity may not meet the requirements of the entrepreneurs.
With vaccination rates climbing quickly in Canada and provinces relaxing restrictions, what planning is the CSE doing to align with the shift back to more “normal” living conditions?
It will be a staged effort. We are headquartered in Ontario and it has only been in the last few weeks that we have come out of hard lockdown, but serious restrictions on office occupancy remain. We are going to maintain the work-from-home situation in British Columbia and Ontario for the remainder of the summer. As September approaches, we’ll have a look and see where things are with the local regulations and our own staff and the level of comfort with returning to the office.
I think some of us who are fully vaccinated are likely to get back out on the road over the course of the summer and begin meeting with people on a face-to-face basis, even if it’s just on a comfortable patio somewhere. And we’d certainly like to get back to the United States, as there is lots for us to do in that market. We’ll obviously have to take it one step at a time as we see what governments have in store for us regarding border re-openings, interprovincial travel and other restrictions. We’re paying very close attention to everything and considering our best path forward.
Last month, Thomas S. Caldwell retired from the Board of Directors of the Canadian Securities Exchange and stepped down as Chairman, a role he had filled since 2012. The move was prompted by a new recognition order from the Ontario Securities Commission requiring the Exchange to have an independent director serve as Chairman.
Mr. Caldwell, President and CEO of Urbana Corporation, played an enormous role in the CSE’s success. In 2012, Urbana led the recapitalization of CNSX Markets Inc., which operates the CSE. Mr. Caldwell was intimately involved in supporting the CSE’s strategy and spearheading its growth. At the time of Urbana’s investment, the CSE had 189 listings, average daily trading volume of 4.22 million shares, and a cumulative market capitalization for all its securities of $1.18 billion. Today, the CSE is a substantial global stock exchange with 610 listings, average daily trading volume of 101.62 million shares, and a cumulative market capitalization of $25.33 billion.
“It is impossible to overstate Tom Caldwell’s contribution to the success of the Canadian Securities Exchange,” said Richard Carleton, CSE Chief Executive Officer. “The success we have achieved in capitalizing on growth opportunities, including those in the cannabis sector, is directly attributable to his leadership. To put it simply, the CSE would not be where it is today without him.”
“I couldn’t be prouder of what the CSE team has achieved over the last eight years,” said Mr. Caldwell. “Back in 2012, I recognized that Canada needed a strong alternative platform that truly met the needs of emerging issuers. Today, there is no doubt that the CSE has fulfilled its promise and is recognized as a preferred public market option for leading entrepreneurs.”
Steve Blake has assumed the role of Chairman of the CSE. Mr. Blake has been a director of the CSE since 2018, and he has more than 20 years of experience in senior financial roles at a range of companies. He was most recently Chief Operating Officer of the Child Development Institute, an accredited children’s mental health agency in Toronto. He previously served as Chief Financial Officer for The Canadian Depository for Securities Limited.
“I am honoured to be named Chairman of the Canadian Securities Exchange,” said Mr. Blake. “While no one can truly replace Tom Caldwell, I am confident that we have an outstanding leadership team in place that is well equipped to drive the next stage of the CSE’s growth and continue to deliver superior service to all of its stakeholders.”
Four New Directors Elected
At the CSE’s Annual and Special Meeting of Shareholders last month, four new, highly talented nominees were elected to the Board of Directors: Hema Barkhouse, Michael Bluestein, Brendan T.N. Caldwell, and Eric Sites. Both Ms. Barkhouse and Mr. Bluestein are independent directors. Three of the CSE’s long-time directors did not stand for re-election: Thomas S. Caldwell, George Elliott, and Joel Strickland.
“We are delighted to welcome four new directors to the Board of the Canadian Securities Exchange,” said Richard Carleton, “They are replacing three truly outstanding directors. Tom, George, and Joel made enormous contributions to the CSE and oversaw a period of significant growth for the Exchange.”
Hema Barkhouse is Vice President, Accounting and Controls at Canadian Tire Corporation Ltd. She has more than 25 years of experience in the retail, consumer packaged goods, telecom, and financial services industries. In addition to Canadian Tire, Ms. Barkhouse has held executive roles at Loblaw Companies Ltd., George Weston Ltd., and Bell Canada.
Michael Bluestein is a Corporate and Securities Lawyer and the Founder of the CC Corporate Counsel P.C. law firm. He has more than 13 years of experience in M&A, corporate finance, registration, compliance, and securities law. He has advised numerous reporting issuers and helped multiple start-ups achieve their goals, from incorporation to successful exits.
Brendan T.N. Caldwell is President, CEO, and CIO of Caldwell Investment Management. He is also Co-Portfolio Manager of Caldwell’s major exchange-related investments, including Urbana Corporation and the Caldwell Growth Opportunities Trust. His securities exchange memberships have included Toronto, New York, the Chicago Board Options Exchange, the Kansas City Board of Trade, and the American Stock Exchange.
Eric Sites is Vice President and Portfolio Manager at Horizon Kinetics LLC, a firm he joined in 2004. He is a member of the firm’s research team and a member of its investment team for certain Horizon private investment vehicles and other registered investment companies. Mr. Sites currently serves on the Council of the Bermuda Stock Exchange, where he heads the New Business Development Committee.
In addition to the four new members, the Board consists of Steve Blake (Chair), Jim Dale, and Jeffrey MacIntosh.
“With our strong new directors and outstanding management team, the Canadian Securities Exchange is well positioned to continue fulfilling its mandate to be the exchange of choice for entrepreneurs,” said Mr. Blake.
CSE’s Phillip Shum chats with TAAT Lifestyle & Wellness Ltd. (CSE:TAAT) CEO Setti Coscarella about their objective to introduce an innovative, experience-driven alternative to tobacco cigarettes for tobacco smokers who aspire to leave nicotine behind.
Here’s an overview of what they cover in this episode of #HashtagFinance:
0:35 – Introducing Setti and the TAAT mission
1:57 – Setti’s background with Phillip Morris’ heat – not burn – product (IQOS)
4:15 – How Hemp/CBD cigarettes emulate a tobacco/nicotine smoke
7:43 – Manufacturing and marketing differences between hemp and tobacco cigarettes
11:53 – Recently secured manufacturing partner and patent filing
14:42 – Where TAAT is currently being sold and tested
16:37 – What you didn’t know about the tobacco industry
18:35 – Setti’s goals as the new CEO of TAAT
19:45 – TAAT’s opportunity in the 900Bn global tobacco market
CSE’s Anil Mall chats with Anthony Brown, CEO of AMPD Ventures Inc. (CSE:AMPD), about his company’s ambitions in providing high-performance cloud and computing solutions for low-latency applications, including video games and eSports, digital animation and visual effects, and big data collection, analysis and visualization.
Here’s an overview of what Anil and Anthony cover in this edition of the #HashtagFinance podcast:
0:35 – Catching-up with AMPD CEO Anthony Brown.
3:10 – What does it mean to be a “Next Generation Digital Infrastructure” company?
4:45 – High Performance Computing vs Commodity Computing.
6:00 – The potential of the global eSports, virtual reality, and digital effects sectors.
8:55 – Recent announcements re: AccelByte and Versatile Media.
13:06 – The financial impact on the film and television industry.
16:15 – Being the company that provides the picks and shovels for the gold rush of virtual production.
20:15 – The Supercluster Project w/ an airline manufacturing plant.
24:20 – How Anthony’s passion comes from his 30 years of experience in the industry.
27:15 – What Stephen Hynes brings to the AMPD team.
30:15 – The Waterfall Building and how it illustrates urban efficiency.
33:35 – Outlook for the remainder of the year.
35:35 – The coming Virtual Reality metaverse aka Ready Player One.
Curious about what’s happening in the US stock market? We invited two market experts to discuss the recent rally in the US on our AFTER MARKET programs and compiled both interviews for your listening pleasure.
Firstly, JB & Bear are joined by their third ever guest on AFTER MARKET – Richard Carleton, CEO of the CSE – Canadian Securities Exchange. In this “After Hours” segment we tap the expert to better understand the recent stock market rally in the face of the global pandemic.
Here’s a highlight of everything discussed on this podcast:
0:35 – Introducing Richard Carleton, CEO of the Canadian Securities Exchange
2:35 – Understanding performance attribution within indices
5:00 – What happens to the stock market when things go back to “normal”?
7:05 – Investing FOMO and behavioural economics
11:20 – Why it’s hard to beat ETF and Mutual Fund returns (but the lizard brain doesn’t care)
13:55 – Money is effectively “free” – how does this impact the equity markets? (Warning: inflation alert!)
Following Richard’s interview, JB & Bear are joined by their fourth guest on AFTER MARKET – Jason Paltrowitz, EVP of @OTC Markets Group In this “After Hours” segment we tap the expert to better understand how the US markets and economy are proving their resiliency in historically difficult conditions.
Dr. Ahmad Doroudian on the Potential of a COVID-19 Treatment, Not a Cure | #HashtagFinance
The CSE’s Barrington Miller chats with Dr. Ahmad Doroudian, CEO of BetterLife Pharma Inc. (CSE:BETR), about BetterLife’s ambitions to advance on the AP-003 clinical trial programs of Altum Pharmaceuticals Inc., which includes a therapeutic pipeline consisting of three products, including AP-003, a patent-pending interferon a2b (IFNa2b) inhalation formulation. Recent studies in China and the UK have provided data that suggest the therapeutic efficacy of interferon-based treatments for COVID-19.
Here’s an overview of what’s covered in this edition of the #HashtagFinance podcast:
3:47 – What BetterLife is doing about COVID-19.
7:01 – How early their product can be used, and if it can be used for prevention.
9:32 – What BetterLife was working on before the COVID-19 pandemic.
11:32 – The differentiators between BetterLife and other companies developing COVID-19 treatments.
15:38 – Taking the treatment approach, instead of the cure approach, to COVID-19, similar to HIV.
19:58 – Phase II clinical trials, and what that means for an investor.
BetterLife Pharma Inc. is an emerging biotechnology company engaged in the development and commercialization of therapeutic pharmaceuticals as well as drug delivery platform technologies. Through its wholly owned subsidiary, BLife Therapeutics Inc., BetterLife is refining and developing drug candidates from a broad set of complementary interferon-based technologies that have the potential to engage the immune system to fight virus infections, such as coronavirus disease (COVID-19) and human papillomavirus (HPV), and/or to directly inhibit tumours to treat specific types of cancer.
First of all, given that Canada remains in varying phases of lockdown due to COVID-19, how is the CSE team doing? Is everyone healthy and adjusted to working on a different basis for the time being?
Yes, everyone is in fact healthy and team morale is excellent. Right now, we have a small number of people at the head office in First Canadian Place in downtown Toronto – one IT person and usually two members of the market operations team, sometimes augmented by our software development group. They are all driving to the office rather than taking public transit.
The building has strict rules in terms of wearing face masks in public areas and distancing in the elevators, but very few people have come back to the office. We are definitely making good use of the various video-calling applications available, so teams are getting together on a daily basis for updates, to share information, and so on. And I’m pleased that people also get together for an occasional social event via video conference. I hear there may even be some games of chance involved one night of the week.
In any event, things have worked out well, and I say that knocking on wood furiously. There was obviously a lot of pressure on the trading systems in late March as Canadian markets experienced record levels of message traffic and close to record levels of trading activity. We weathered that storm quite nicely with a distributed workforce, which is very gratifying.
I will say the fact that many of our current team members were with the exchange during the global financial crisis in 2007 and 2008 really helped us respond to the various challenges, during March in particular. We knew what to look for and what the bottlenecks in the system were likely to be, and we had our eyes out for those issues. I can remember sending an email one Sunday in March saying we were going to see the market really come off the next day and thus needed to review our circuit breaker rules and have all the notices drafted in advance. We had some extra staff in the office that day just in case. We are very happy with the way our teams and all the machines we rely on rose to that particular challenge.
How did the exchange react in March when it became clear to Canadians that special measures would need to be taken to cope with COVID-19?
We were a little ahead of the curve in some respects. Many of us were at the PDAC mining conference in Toronto, and as it became apparent that a number of PDAC attendees had contracted COVID-19, we placed ourselves into voluntary self-isolation right away. As a result, we were about a week ahead of the official lockdown orders, and that put us in good shape because we had already done most of the things we would have been required to do later in the month.
As well, we have various protocols in place that have been rehearsed over the years. These anticipate the Toronto office not being available or the Vancouver office not being available and having to distribute the workload to people working remotely. We had a pretty good idea of what needed to be done.
Now, I don’t think any of us ever anticipated that we would be working like this over the course of many months, but, as I say, we had thought through this in advance and done some rehearsals, so it was really just a case of dusting off the plans and executing them.
The head office sounds quiet for the time being, but what do you anticipate in terms of gradually returning to “normal” or what you envision as your new normal? And what does Richard Carleton’s typical day look like?
People ask me what reopening is going to look like for us, and my answer is that we have been functioning throughout. We have been conducting business across all lines, whether it is trading services, market information, or listings. And as I mentioned, we are quite pleased with how everything has worked. Activity, particularly in corporate finance and listings, has been robust over the past couple of months, to say the least.
With things going as well as they have been, we are in no rush to have everyone return to the offices in Toronto and Vancouver. One of the issues is physical capacity in elevators, because we could undermine our productivity lining up to go upstairs and downstairs multiple times a day. Another issue is that many of our employees use public transit to get to the office, and people are uncomfortable with regular use of public transit right now. I don’t see that opinion changing until we get a better handle on infection rates, particularly in Toronto.
One other thing to consider is that some on our team have school-age children, and it’s not clear at this point what is going to happen in Ontario or British Columbia. Will school be back five days per week? Will it be a partial return? Will significant levels of homeschooling continue? Those are all things we have to be sensitive to when thinking about any return. My sense is we are going to be at less than full capacity, certainly at First Canadian Place, for the foreseeable future.
As for my day, it is kind of interesting. In normal times, I have a lengthy commute morning and night, and that has been replaced by walking to my basement to begin the workday. I have always been an early riser, and there has been no change there. I began using that extra time in March to give people a heads-up on what to expect each day. I scan the global financial press and other information sources every morning and send a note to all staff with thoughts on what we should expect and try to have that out no later than 7:30 in the morning. After that, my workday starts.
Before and After “COVID Hair”
How has this environment influenced activity at the exchange, in terms of trading, new issues, the new-issuer pipeline? Are there pluses and minuses?
We saw a tremendous amount of trading activity in March as stocks collapsed and then returned in record fashion in all markets. But financing was slow in April as a result of the uncertainty we saw in late March. There was a strong rebound across all of our business lines in late April and into May, and that has continued right through into July. We are trading on sunny July days at levels that I would have said you were crazy if you told me five years ago that these were the sorts of numbers we were going to be doing.
It may be a function of retail investors playing such a large role in our market. Even if people are getting out a bit more than before, they still have time on their hands, so they’re doing a lot of trading from home. That’s clear from the numbers we see on the turnover front.
On the corporate finance side, our numbers on a year-over-year basis are down a bit in terms of capital raised, and that really was a function of April being quiet. But there have been more deals. So, a little less money, but probably 25% or so more individual financing transactions being completed.
I think we can explain that in a few ways. One is that we obviously don’t have a long list of cannabis issuers raising large amounts of money, as was the case at this time last year. That having been said, I will point out that we are starting to see some of the big multistate operators listed on the CSE raise meaningful amounts of capital again, which is a good sign for the sector.
We are also seeing a lot of interest in precious metals exploration, energy metals, rare earths, and other commodities. Generally speaking, the amounts raised to fund exploration projects are smaller than those that the big cannabis issuers were raising in recent years.
I think through the end of May, CSE issuers had closed nearly 450 transactions, which is more than three per day. New listings have also remained healthy, with April being the exception. And the applications pipeline suggests a continued strong flow of new issues over the next few months. I am a little surprised by that, but we obviously are all very pleased.
Let’s talk about some of the numbers from the first half of 2020 as a whole, and then how the first quarter and the second quarter differed.
Trading volume in the second quarter was considerably higher than in the first quarter due to the market volatility. The corporate finance numbers are a bit skewed, because one of our US cannabis issuers raised US$300 million in January, so the total dollar amount favours the first quarter over the second. But since activity in general started to rebound in late April, the number of financings coming to market has really increased. I’d also say there has been a shift in capital formation from the cannabis space to the mining space, and good interest in technology as well.
I’ll point out again that these are not companies that will raise tens or hundreds of millions of dollars at a time. So, more money raised in the first quarter and really positive in terms of the number of transactions being completed throughout the first half.
One other important number I would highlight is IPOs completed in the first half. There were 17 IPOs across all Canadian exchanges, if you disregard CPCs and SPACs, and 15 of those took place on the CSE. Considering the slow pace of IPOs just a few years ago, this is great to see for Canadian financial markets. The majority of IPOs on the CSE were in the mining sector, which I think is also worth noting.
The creation of a senior tier at the CSE is a topic of importance to both existing and potential issuers. What can you tell us about progress toward establishing the new tier?
We are deep in discussion with the corporate finance staff from the BC and Ontario securities commissions. I am very pleased with the progress we have made to date, and we will look to publish proposed rules for the junior and senior tiers as soon as we have come to an understanding on all of the issues with the securities commissions. When we reach that stage, there will be an opportunity for members of the public, corporate finance professionals, and our issuers to provide specific comments on the proposed rule changes. Things are going well, though, and it is pretty much the biggest undertaking we have going over the course of the summer.
Can you update us on the clearing and settlement platform? That is also a huge undertaking, and it involves a wide range of parties in the financial community who do business with the exchange or for whom the exchange facilitates business.
We have identified partners who will be extremely important in executing this project as we move into the production phase. We are doing an awful lot of work on it, and this summer will be spent getting to the point where we can engage groups from the dealer and vendor communities to work with us on testing.
Let’s discuss changes in the approach to marketing, as the CSE team spent a lot of time on the road right up until the end of February. That is not the case now, nor for the foreseeable future. What new ideas emerged to help the team adapt and ensure marketing activities remained effective?
We have been very active on a variety of social media channels and have transitioned sales and marketing efforts away from individual meetings and conferences for the time being. We have replaced that with active use of Instagram broadcasts, our YouTube channel, and other online media to engage with our audience. We are at the point where we can begin to assess what is working and what is not.
The nice thing is that these activities are considerably less expensive than the kind of work we were doing before. We can fail fast on them, without significant financial impact to the organization, and direct resources to the channels where we are getting engagement. We have been doing a lot of interviews with thought leaders in emerging areas. One of the popular ones recently has been the psychedelics space.
We have also collaborated with MNP and the Aird & Berlis law firm on a series of webinars on various subjects. We’ve done psychedelics and technology, and we’ll have a cannabis update in August. We have been able to engage several hundred people at a time and are starting to see increasing numbers of subscribers to our YouTube channel and people following live on Instagram. Barrington, Phil, Grace, James Anil, Anna – everyone is getting lots of face time on these channels and engaging with different parts of our constituency.
It has been interesting and a great learning experience, and we are definitely figuring out how to better target our efforts. And it is considerably less expensive than doing things the old-fashioned way, which has been good for our bottom line.
The leadership team at a securities exchange has a somewhat unique perspective from which to observe the national business community. What are your thoughts on diversity among small-cap public companies at the management and board levels?
There is no shortage of data to suggest that management, boards of directors, and senior advisors of Canadian small-cap companies tend to be largely male and largely white, and therefore don’t reflect society more broadly. I look at the Canadian Securities Exchange, and our board and senior management team tend to fall into that category.
I am pleased that our workforce is, generally speaking, representative of the populations of Toronto and Vancouver, so it’s very diverse. And one of our challenges is identifying how we get to a greater degree of diversity in our management ranks, and on our board as well. We need to act in ways that see the Canadian Securities Exchange, in a short period of time, represent the demographic of Canada generally, and our home markets in Toronto and Vancouver more specifically.
Is there a specific role for junior capital markets to play in helping the world overcome the COVID-19 crisis?
That’s a bit of a chestnut. Small business is the engine of economic growth and employment growth and innovation in an economy. But they get to be chestnuts because there is a kernel of truth in them. We certainly see companies looking for different applications, whether they are looking for vaccines, or to lessen the severity of COVID-19 symptoms, or to anticipate outbreaks in areas at risk using combinations of data and artificial intelligence.
There are obviously many things the small-cap community is working toward in response to the epidemic. You never know where breakthroughs are going to come from. But there clearly is no shortage of entrepreneurial energy, and significant resources have been made available to help companies try to solve some of these problems.
