Tag Archives: Richard Carleton

#HashtagFinance, Podcasts

Making Sense of Today’s US Markets with Richard Carleton & Jason Paltrowitz | AFTER MARKET SPECIAL

Audio

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.

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CSE Performance

Interview with Canadian Securities Exchange CEO Richard Carleton H1 2020 Review

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.

#HashtagFinance, Podcasts

Bruce Campbell and Richard Carleton Take Stock of 6 Years of Public Cannabis

Audio

A special “Cannabis Week” presentation, CSE’s Anna Serin was joined by CSE CEO Richard Carleton and special guest Bruce Campbell, Founder and Portfolio Manager at StoneCastle Investment Management Inc., to recap the (brief) history of the cannabis industry in the Canadian markets, and lend their insights from the front lines of this rapidly evolving industry.

From this chat, the insights shared include Richard’s recollection of how the CSE became a key proponent of the industry some six-years(!) ago (1:19), the one-factor that triggered Bruce to lean into the once-in-a-lifetime investment opportunity presented by cannabis deregulation (7:06), and reflections on the state of the industry before the global pandemic arrived (13:56).

Listen until the end to hear Richard and Bruce’s musing on how starting a cannabis company is like buying a golf course, the impact of COVID-19 on domestic and international cannabis operators, and the growing pains that indicate that the industry still offers opportunity amidst the ongoing business and macro risks of the day.

Disclaimer: The views, information, or opinions expressed during the podcast are solely those of the individuals involved and do not necessarily represent those of the Canadian Securities Exchange and its employees.

StoneCastle Investment Management Inc. Legal Notice

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#HashtagFinance, Podcasts

Live from Davos: Jason Paltrowitz & Richard Carleton on Innovations in Cannabis

Audio

CSE’s James Black was joined by Jason Paltrowitz, EVP of Corporate Services at OTC Markets, and CSE CEO, Richard Carleton, at the Cannatech Davos Cannabis House for the second installment of a live episode of #HashtagFinance.

In this discussion, Paltrowitz and Carleton talk about the advantages of transparency in the public markets (3:30), how public markets might recapture investor trust in the cannabis industry (7:45), the macro trends that might help lift the market (10:30), and how, instead of sweeping government action, it’s been innovators and entrepreneurs that have been driving the cannabis industry forward (15:30).

Listen until the end to hear about the impressive pace of innovation within this space (22:00) and how some companies are successfully grasping what it means to be a public company (24:30).

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#HashtagFinance, Podcasts

Live From Davos: Jason Paltrowitz & Richard Carleton on Cannabis in Public Markets

Audio

CSE’s James Black was joined by Jason Paltrowitz, EVP of Corporate Services at OTC Markets, and CSE CEO, Richard Carleton, at the Cannatech Davos Cannabis House for a very special live episode of #HashtagFinance.

In this interactive discussion Paltrowitz and Carleton explain the advantages of being a publicly traded company and the importance of that funding in the cannabis industry (2:30), the lessons we can learn (again) from this burgeoning industry (12:00), why the US government is the worst weed dealer possible (17:30), and how the entrance of international biotech companies into the industry is helping to legitimize it on a governmental level (20:00).

Listen until the end to hear about the incredible potential of hemp to solve big problems the world is facing (27:00), and why North America continues to be the best place for cannabis companies to go public (36:00).

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CSE Performance

Interview With Canadian Securities Exchange CEO Richard Carleton: 2019 Review

The CSE is known to share milestone moments with their newly listed companies, but it also celebrated some major milestones of its own this past year. In addition to its 15th anniversary in 2019, the CSE also celebrated 129 new listings – including three Israeli companies – the signing of an MOU with the Jamaica Stock Exchange, and a growing team of over 50 employees. Scroll on for an exclusive, in-depth interview with CSE CEO Richard Carleton, as he discusses industry challenges from 2019, areas of growth for the CSE, and what’s in store for the new decade.

PM: First of all, congratulations on marking your 15th year as an exchange in 2019. We’ll review some developments in a moment illustrating how the CSE has grown in size and stature. But let’s begin by discussing what it’s like to take a concept built around superior issuer service and grow it into a securities exchange that now routinely attracts listings and capital from around the world.


RC: The quick answer is that we are not ready to declare victory just yet. Yes, we are pleased, and in some respects, humbled, with the success we have had to date. But we know there is a lot more work to do to provide the best possible listing and trading environment for issuers and investors before we can really feel any significant level of satisfaction.

We still have a lot of work to do on improving access to the CSE from outside of Canada. We also want to engage with the institutional investor community to provide a greater diversity of shareholders for CSE issuers so we are able to expand beyond the traditional base of retail investors who have supported CSE issuers to date. There is still quite a bit of work for us to do to provide that best possible experience for issuers and the investing community.

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PM: Comment for us on market quality. The CSE team has been very successful at establishing relationships on the data side and ensuring easy access for investors to place orders. Are we seeing the hallmarks of a quality market, such as market depth, tight spreads and lower volatility? And what is the CSE doing to continue to enhance market quality?


RC: We are constantly looking for ways to improve all of the benchmarks of market quality you mentioned, whether it’s spreads, turnover, trade continuity, or other measures. And let’s face it, it is particularly challenging in the small cap space, where companies can be subject to significant levels of volatility.

Again, we think that providing as broad access as possible to all categories of investors in Canada, the United States and beyond is key in terms of improving market quality. The more participants you have in the auction process, the better the outcomes will be for investors, as well as for companies looking for an appropriate valuation of their shares and the ability to conduct financing activities at the lowest possible cost of capital.

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PM: European retail and institutional investors often participate in North American small cap opportunities. What can you tell us about trading access for European investors?


RC: Canadian and US small cap markets got caught up in a European securities regulator initiative a few years back to limit access to the so-called penny stock market. As a result, most of the bank- and institutional-owned advisors in Europe are unable to provide trading services for companies listed on the CSE, over the counter in the United States, and various other markets that cater to small cap companies.

That said, we have made inroads in improving coverage from the “self-directed” market in Europe, and that has assisted companies in broadening their shareholder base to interested retail and private investors on the continent. These folks have become an important source of capital for our issuers: in the cannabis space, for instance, 15% of the capital raised in 2019 came from Europe. So, people who have conviction are finding a way to trade shares from overseas.

All that having been said, the CSE team continues to work with various platforms and service providers who can manage that order flow into Canada from other parts of the world, and that will be an important area of focus for us in the coming year.

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PM: Let’s look at a few numbers: listed securities up 23% in 2019 to 569, total value of financings down 42% to $3.15 billion, trading volume down 31% to 19.8 billion shares, and  value of trading down 17% to $16.9 billion. Despite these declines in KPIs, 2019 still stands as the second best year for trading and financing in the exchange’s 15 year history. Take us behind those numbers and tell us what you saw and heard to help us make sense of it.


RC: It’s really quite straightforward. On the finance side, 2018 was the year that the big US multistate operators came into the Canadian Securities Exchange. We saw record amounts of money raised that year, led by a handful of very large US companies. As valuations fell in 2019, companies were not in the same strong position to raise additional capital by way of a secondary offering. It would have represented considerable dilution of the original investors.

We saw a real shift in 2019.  There was a lot less capital raised in the cannabis sector and, secondly, the capital that was raised was through secondary offerings of convertible or debt-related securities issued by existing companies. And I think it’s fair to say that there were a lot of private companies in the United States that took a wait-and-see attitude in 2019 to watch whether valuations for US companies would recover. And if and when they did, those companies would be re-visiting their plans to do a  public offering.

I’m pleased to say that, from the beginning of November, the US cannabis group is up more than 20%, with the positive price performance accelerating in recent weeks. That should be a positive leading indicator for us for the coming year.

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PM: The CSE’s growth has been driven by multiple industry sectors, but far and away the most important for the past few years has been cannabis.  It’s fair to say that this sector ended 2019 with some challenges on its hands. Talk to us about 2019 in terms of the way the market transitioned for cannabis, and what are you hearing that might be of use to those trying to understand where it goes next?


RC: The cannabis sector as a whole traded with very high correlations through 2019. What I mean is that whether the company was a Canadian cultivator, an extraction company, a US multistate operator, or another type of company, the stocks tended to trade up and down with a very high degree of correlation.

That was a source of some frustration for the management teams of US companies, as many of them were meeting or exceeding their revenue and earnings forecasts. Many are doing really well and expanding their networks into additional states. So, those companies, while they may have a different set of challenges in front of them than do Canadian LPs, have an addressable market that is already significant and will only grow going forward. We are beginning to see support for that theme, and it does look like the correlations are breaking down; companies are being judged more on specific achievements than prevailing sector sentiment.

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PM: What about other sectors? Are there any already shaping up with a particularly interesting outlook as we begin 2020?


RC: We did a lot of outreach to the esports community last year and we have had success with some listings in that space already. It is a very interesting market. I don’t think it is clear what the most successful investment approach in the sector will be, but I believe investors accept the idea that as time goes on, people will spend more money and time on esports.

But in terms of the number of companies that joined the exchange last year, half of them were gold exploration companies. That was certainly driven by the fact that the value of the underlying commodity increased last year to well above $1,500 per ounce. And after many years of very little activity in the space, we saw a number of get funding, join the public markets and begin to pursue exploration programs. We see that continuing in 2020, in all likelihood, particularly given the backlog of applications to list on the CSE and continued strength in the price of gold. I guess it is kind of getting back to our roots in many respects, as for most of our existence the mining sector has been far and away the largest industry group on the exchange.

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PM: With mineral exploration taking on renewed importance, do you have any thoughts on the Save Canadian Mining initiative and the impact of short selling on the mining industry?


RC: The issue is not short selling as much as it is abusive short selling. And we already have a lot of rules in place designed to curb abusive short selling. I am concerned that some of the measures proposed, regarded by many as a panacea, may not in fact be the magic bullets they are purported to be.

I think that the first step is taking a hard look at whether our current rules are being circumvented in any way. We certainly don’t lack anecdotal testimony about the evils of abusive short selling. But it is a complicated issue and I have concerns that you could materially affect share turnover and liquidity if we make well-intentioned but poorly applied changes to the short sale rules. As I say, it is a very complicated topic, and to the extent that there is abusive short selling taking place, I believe that it is likely well within IIROC’s ability to address right now without any additional rules.

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PM: The plan to create a senior tier at the CSE was revealed in 2019. What is the status, and is there any interesting feedback you can share with us from issuers, regulators or others regarding this idea?


RC: Basically, we have completely rewritten the listings manual for the Canadian Securities Exchange in order to effectively create two tiers of issuers. This is designed to reflect the distinctions in Canadian securities law related to venture issuers and non-venture issuers.

Non-venture issuers, who are the more senior companies with larger market capitalizations and complexity of operations, have different rules around corporate governance, financial reporting and continuous disclosure. Timelines for them to report quarterly and annual audited financial statements and other burdens more appropriately borne by larger companies are a good example.

We have a significant cohort of companies which, if they were listed on two of the other exchanges in Canada, would be categorized as non-venture issuers.  We think it is appropriate to put in place a formal framework to ensure that those companies are regulated by us as non-venture issuers, as they are on other marketplaces.

It is important that comparable companies are subject to the same level of oversight and regulation. The companies win because investors know that there is no possibility of regulatory arbitrage or differences in reporting between the CSE and other exchanges. If companies on the senior tier become eligible for margin under IIROC rules, as we are working towards, that will improve liquidity in those names because trading and corporate finance costs should go down.

We have completed the work and are now basically huddled with regulators in BC and Ontario on the final few points. We hope to get clearance from the regulators to soon publish the new listings manual for a 30-day public comment period. If all goes well, we look to implement these new rules shortly after the 30-day comment period expires, and on the receipt of formal regulatory approval from the two commissions.

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PM: What, if any, impact will this have on fees at the exchange? Your fee structure has always been a factor that differentiates you positively from other exchanges.


RC: We have made some adjustments to our fee schedule for issuers. This is both for applications and for what we refer to internally as hosting fees, i.e. the monthly fees that companies pay over the life of their listing on the exchange. We have established four tiers, which are market capitalization-related, with different levels of fees.

Going into this exercise we knew there were a few governing principles. We knew that we wanted to maintain one of our key strengths from a pricing perspective, and that is cost certainty. So, regardless of how much activity a company engages in – whether it is secondary financings, business changes or another activity – they are going to pay the same to us regardless.

Secondly, we know that as the relatively new kid on the block, we do need to be cost-competitive with all of the alternatives, whether they be exchanges in Canada, or the over-the-counter market in the United States, or some of the venues in Europe that cater to early stage companies. We have achieved that in this exercise, but we still gain considerable resources, both from the growing number of listed companies and the fee increases that have been introduced. It enables us to reinvest in the work that we do on behalf of our issuers in a variety of ways, one of them being to help them tell their story in a number of ways to a market that is very crowded and competitive.

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PM: The second half of last year saw three companies from Israel list on the CSE, the first ones from that country. You signed an MOU with the Jamaica Stock Exchange. How important are international activities to the CSE today, and how do you see them being important in the years ahead?


RC: Our international activities have largely been driven by our support for and involvement in the cannabis industry. The three Israeli companies that have listed are in different parts of the cannabis space, and we have the same situation with the Jamaica Stock Exchange. There is a significant legacy industry in Jamaica which is in the process of being legalized. It is a low-cost cultivation jurisdiction, but they have challenges locally from banking and other perspectives in listing and trading those stocks. Our work with the Jamaica Stock Exchange is to help Jamaican companies raise capital from Jamaican and CSE investors and have a liquid market in their securities here on the CSE, which is something we are really looking forward to.

In the case of the Israeli issuers, we have done good work with the OTC Markets Group out of New York, collaborating on what essentially amounts to access to North America in a single transaction. Companies that become Canadian reporting issuers and list on the Canadian Securities Exchange, in addition to being able to raise money from Canadian investors, are also able to take advantage of prospectus exemptions in the United States to do private placement financings with US investors. These companies are also able to access liquidity in the US through the markets operated by the OTC folks.

This is a very powerful tool. For a small Israeli company to consider the ability to work in the United States, it is a very big leap, and very expensive, and risky. We can cut a lot of this cost and risk out by providing them access to North America through a CSE listing.

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PM: The CSE does a lot of work on behalf of the issuer and dealer communities that people never hear about. Is there anything interesting going on in regulatory or other realms that the exchange is helping to shape?


RC: We are an active and engaged participant in the ongoing debate over public capital markets policy. We routinely submit comment papers to the securities commissions and are represented on a number of stakeholder committees and industry boards to advance the interests of our listed companies.

The biggest challenge for companies who are nearly public, in reality, is coming to grips with the fact that the going-public transaction is not the goal, but rather just the beginning of the heavy lifting. Companies really do need to understand that they have to tell their story and win mindshare from investors in order to stand out from what is a very, very large group of peers.

What we’ve tried to do is give them opportunities to tell their unique stories in a number of  different ways. We initiated market opening ceremonies for our issuers, which tie in with various media outlets with whom we are affiliated to give them more exposure. We also created a podcast studio inside our head office where issuers and thought leaders from different industries have conversations about issues of interest to the CSE community. There has been great pickup on these services, as we can see how many people listen to a podcast and how many people follow us on social media. So, there is that sort of general work that we do to provide our issuers with opportunities to tell their stories.

We are going to do more work in the coming year to teach companies about the public markets. How can they boost liquidity in their shares? What are the things that work for companies? And there are questions around market-making, and marketing activities – what are the marketing activities you need to undertake, what are the trade shows you need to be at? We try to really act as a concierge to give them access to as many opportunities as we can to help them navigate what is a very complicated, confusing and difficult world.

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PM: The CSE now has over 50 employees. How do you see the continuous expansion of the CSE influencing your culture, and what is the impact on your clients, the companies who list on the CSE?


RC: Well, so far, the growth has not come at the expense of what I believe is an enthusiastic, fun-loving, “don’t take yourself too seriously, but do take your work seriously” kind of culture. And if that comes from the top, that’s great, as it’s entirely intentional. Our employee turnover is low, and the experience level is very high. I think we do have a healthy and strong culture in the company, and I am looking forward to seeing that continue in the future.

I get tremendously encouraging feedback from our clients – the issuers, the dealer firms and others – about how positive their interactions with our team members are, and that is extremely gratifying. In fact, that is about as good as it gets. I understand that those types of compliments are not won easily. From my perspective, it is very gratifying when I get that kind of feedback.

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PM: Finally, can you share with us your expectations for the exchange in 2020? And what do the next 15 years hold for the CSE?


RC: That’s easy – there will be another chief executive at the helm 15 years from now, I’m pretty sure.  Nearer term, we clearly have a few key projects. We’ve talked about the new rulebook that will see the introduction of a senior tier, with the knock-on effect of margin eligibility for issuers. We haven’t mentioned that the new rulebook provides for the ability for the CSE to list ETFs and Special Purpose Acquisition Corporations, which is a vehicle that has proven popular for issuers to raise capital. So that will have a positive effect for us and provide new and interesting vehicles for investors.

We also haven’t talked about our clearing and settlement initiative to list, trade, clear and settle tokenized securities. We have been quietly working away on that last year and into 2020. I expect this is the year we will be making a formal application to the regulators for that clearing facility. It is a significant undertaking and there are a lot of different people at the exchange engaged in the effort. And again, we continue to receive a lot of support and interest from the issuer community to implement this ability to use securities tokens to raise capital.

As far as the longer term, I think there are some interesting challenges ahead for public markets generally. There is a lot of competition from different forms of private equity investment. Whether that is private equity or venture capital or different sources of non-public financing. Public markets are really going to have to continue to make their case to consumers of investment capital and constantly address areas of inefficiency and cost. You don’t have to look very hard to see studies or commentary on the benefits of staying private, for the technology and life sciences industries in particular. I think that is going to be a big theme over the next few years. Essentially, is the existence of the public market assured? Is the Canadian Securities Exchange going to continue to be a venue for companies to raise capital? Or, is it instead going to be an exit for the early stage investors who are looking for public market liquidity? I think that is a hugely important debate that is already taking place, and the continued existence of the status quo is simply not assured.

#HashtagFinance, Podcasts

Jason Paltrowitz and Richard Carleton on Opportunities Beyond the Border

Audio

This special episode of #HashtagFinance takes the podcast out of the studio and into the CSE Media Centre! Jason Paltrowitz, Executive Vice President of Corporate Services at OTC Markets Group, and Richard Carleton, CEO of the Canadian Securities Exchange, join James Black to talk about Cannabis Investor Day, the inaugural event co-hosted by the CSE and OTC Markets Group (0:53), the importance of the CSE’s partnership with OTC Markets when it comes to creating opportunities for listed companies beyond the border (1:40), and why maintaining cross-border shareholder visibility is essential (6:25). Listen until the end for Jason’s explanation of the different market tiers at OTC Markets, for Richard’s advice to Canadian issuers going into the US markets, and to learn how both the CSE and OTC Markets Group help companies not only go public, but learn how to be public.

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#HashtagFinance, Podcasts

Richard Carleton on Celebrating 15 Years as a Recognized Exchange

Audio

In this very special 50th episode of #HashtagFinance, CSE CEO Richard Carleton joins James Black as the podcast’s first-ever repeat guest to celebrate the CSE’s 15-year anniversary as a recognized exchange (1:02), to reflect on how the growth of the cannabis industry affected the evolution of the CSE (7:08), to discuss the upcoming expansion from junior exchange to an exchange that’s focused on a broader base of securities (12:48), and how it felt to ring the bell at the very first Market Open at the CSE Media Centre (24:10). Listen until the end to learn more about the culture and people who have helped the CSE achieve this milestone, why Richard loves coming into the office every day, for details on the new Media Centre, and to see what’s ahead for the CSE. Cheers to 15 years!

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CSE Performance

CFN Media Interview with Richard Carleton

Video

Over the last five years, the cannabis industry has undergone a period of transformative growth, and the Canadian Securities Exchange has grown with it, providing countless opportunities for innovation, expansion, and success.

In this interview with CFN host and Managing Partner of Zuber Lawler, Tom Zuber, CSE CEO Richard Carleton discusses the impact the cannabis industry has had on the CSE, the global emergence of new cannabis markets, and the advances that have happened in the industry, both technologically and economically.

Tune in to learn why Canada continues to be a leader in the cannabis industry, the challenges and successes of opening this industry up to the investment community, and the innovative organizational structures emerging from the complicated landscape of cannabis as a consumer product. Hear Richard’s take on prohibition, ancillary cannabis companies, and the future of the European cannabis market in this exclusive, three-part interview.

CSE Performance

Interview with Canadian Securities Exchange CEO Richard Carleton: H1 2019 Review

When it comes to achieving milestones at the CSE, the Exchange for Entrepreneurs is on an extended winning streak. With capital raised by CSE-listed issuers, trading value, and number of listings (more than 500!) all reaching new heights, it’s already been a strong start to 2019. Scroll on for an exclusive, in-depth interview with CSE CEO Richard Carleton as he discusses the factors contributing to this sustained positive momentum, and provides a glimpse of what’s ahead for the next half of this record-breaking year.

The first half of 2019 saw the CSE continue to grow in terms of total capital raised by issuers, trading value and a new record for the number of companies listed. Can you start by giving us the story behind the strong performance? What is allowing the CSE to consistently grow so quickly compared to other exchanges?

It is a continuation of the trends we saw establish themselves in 2018. There remains strong interest in the cannabis sector, particularly for companies working on opportunities in the United States, and increasingly now in the Caribbean Basin, South America, Europe, the Middle East and Asia. We’ve seen a considerable amount of funds raised in the sector and an increasing pace of mergers and acquisitions activity.

We’ve also seen renewed interest in the mining space.  I was looking at our year-to-date numbers the other day and to the end of June, an identical number of mining companies have joined the exchange this year as cannabis issuers. We have also welcomed a significant group of technology companies.

These are very positive trends: the diversification in the makeup of newly listed companies is healthy, and I think the rebound in the mining sector – particularly gold exploration – is something that people are going to be very interested in as the year progresses.

I recently saw comparisons showing the CSE leading other venture-focused exchanges in several categories, including average issuer market capitalization and average financing size. What’s driving these KPIs and is it sustainable?

Again, this is largely a cannabis story. If you look at our most active stocks, they tend to be from the cannabis sector. What it speaks to, in particular, is continued retail interest in the industry. It also speaks to the appeal of the issuer community we have been able to bring to the exchange. It’s a very diverse set of companies, ranging from those involved in cultivation in Canada to multistate operators in the US, and companies looking even further afield internationally.

We are also starting to see issuers with more than just cultivation.  Examples would be companies that are looking to make improvements in extraction, others in biotechnology, and yet others building brands in specific markets. These companies, in some cases, trade for $15 or $20 per share, and that positively impacts the value of trading.

Let’s run with that theme. Last year, Curaleaf’s IPO was the biggest the CSE had ever seen, at the equivalent of some CDN$520 million, and Harvest Health & Recreation announced a financing in April of this year equal to around CDN$650 million. Those are just a few examples of financings big enough to fuel sustained national or multinational growth. What are you hearing from issuers regarding who is coming into these deals, and their general experience raising large amounts of capital on the CSE?

What is interesting about these transactions – and you didn’t mention the largest of all, which is the short-form prospectus that Acreage filed with the Ontario Securities Commission recently to raise up to US$800 million – is that they really are global efforts.

We know that Canadian retail and institutions have been long-time supporters, which seems kind of funny to say for an industry that is, at best, five years old. But they continue to be a significant and core part of large financings. And we are increasingly seeing participation from the United States. Family offices, hedge funds, and high net worth individuals are backing these raises. Parsing the information after a financing closes, we also see interest from institutions and family offices in Europe and Asia. When we totaled it up last year, we saw 103 different jurisdictions around the world represented by investors in deals on the CSE. I think on a year-to-date basis it is about 83 jurisdictions represented. Basically, every part of the globe has participated in capital raises conducted through the facilities of the CSE.

Issuers have emphasized to me repeatedly that there are no concerns with the fact that their company is listed on the Canadian Securities Exchange. We are a recognized exchange around the world for a variety of tax and pension investment purposes, and because we have achieved that status our issuers find very little resistance to investment in their transactions because of their listing exchange.

The British Columbia Securities Commission is now one of your official regulators. Explain that development and what it means going forward in practical terms. Will it slow or change things in any way?

The British Columbia Securities Commission has been talking about taking on this role for as long as I have been with the Canadian Securities Exchange, and that’s about 12 years at this point. The reason is that a majority of the companies listed on the CSE are domiciled in British Columbia.

I think the commission moving now is a reflection of our relevance and continued growth in the number of listings. There are now over 250 BC companies that trade on the CSE. With so many connections to the province, I believe the commission concluded that it was in their interest to take an active role in the regulation of the exchange.

Our long-standing principal regulator is the Ontario Securities Commission; the BCSC will be working with the OSC to make sure there are not any duplicative activities. As a result, I am confident that the BCSC move will not impact the operation of the exchange in any way. We have worked very closely with the OSC and BCSC over the years and will continue to do so effectively.

I hear the CSE is planning to introduce a separate tier for senior companies. What is the thinking behind that?  What benefits will it offer companies that qualify for this tier?

We find ourselves in a situation unique in Canada. Under the National Instruments that set out how companies and exchanges are regulated, it’s really divided into two worlds: venture exchanges and non-venture exchanges. The rules for companies listed on a venture exchange have a lighter touch than for companies listed on a non-venture exchange, such as the Toronto Stock Exchange. We find ourselves in the fortunate situation of having listed companies that fall into both “venture” and “non-venture” buckets.

We are not proposing any change in the way our early stage companies are regulated. We now have a substantial number of companies that have significant market capitalizations, tangible assets, and revenue coming from a variety of jurisdictions. A regulatory framework designed to oversee the operations of a junior mining exploration company really is not up to the task of overseeing the operations of a US multistate operator in the cannabis industry with a multi-billion-dollar market cap and hundreds of millions of dollars in annual revenue.

We’ve been dealing with this to date by imposing higher standards on these larger companies as they list. So, there has been no regulatory gap, but we are now in the process of introducing changes to our listing rules designed to make these higher standards official and transparent.

When the project is complete, following a process with our regulators and a public comment period, these companies will be separately identified for the information of investors. We expect that the securities of these senior issuers will be eligible for margin under IIROC rules. It will also give the exchange the ability to list special purpose acquisition corporations, which are becoming an increasingly popular vehicle for creating public companies in Canada. It will also enable us to initiate an ETF listing program, which several parties have been very interested in listing on us. It will help address concerns that institutional investors and professional investors in Canada and the US may have had about the opportunity for regulatory arbitrage between the CSE and other exchanges in Canada.

There is a lot of interest among finance industry professionals in the blockchain-based clearing and settlement system the CSE is developing. What can you tell us about your progress?

The first thing to note is that we retained Andrew Grovestine within the past three months. Andrew is an experienced brokerage industry executive and is going to lead our effort to create a settlement and clearing service in Canada based on distributed ledger technology.

Our vision here is not really to emphasize the clearing and settlement service, although it’s certainly a key component of how we believe the future is going to play out. What we are really looking to do is to provide a safe, regulated environment for the listing and trading of tokenized securities. We think this will be of real interest to companies and investors because using these tokenized securities substantially reduces costs for issuers wanting to pay dividends, royalty streams, or other entitlements a company might want to provide its shareholders. By doing it in this way we can cut the cost of capital for issuers and incent the creation of a whole range of new and interesting instruments, whether they are in the form of common equity or debt, or other types of security instruments that will be of interest to both retail and institutional investors.

One of the pieces of that puzzle is the clearing and settlement component, which will make trading more efficient by shortening the clearing and settlement cycle. It will also make the processing of entitlements to shareholders significantly more efficient. But, as I say, the real headline here is that we want to create the best structure for tokenized securities to trade in a regulated environment.

As far as where we are with the project, we are about to initiate third-party testing with the dealer community. We’ve assembled an advisory group of dealers who will help to guide us through the process and they are excited about the opportunities that this initiative could bring to the market.

The CSE has not raised new capital for many years and on the surface would seem to benefit from a stable ownership structure.  How does this help you to serve the market?

We’ve been blessed to have patient and supportive principal shareholders over my term as CEO. I’d begin with Urbana Corporation, which is Tom Caldwell’s investment fund. Mr. Caldwell, as you know, is Chairman of the Canadian Securities Exchange. Shortly after Mr. Caldwell led the recapitalization of the company he was joined by Ned Goodman, who served as Vice Chairman for a number of years.

I can’t tell you how much credibility the investments from Mr. Caldwell and Mr. Goodman brought to the organization. I think that the CSE team was always respected in the industry, but there were concerns as to whether we had the resources to stay in the game for the long haul. With the support from Mr. Caldwell and his team and Mr. Goodman’s investment, those concerns were permanently put to rest, and laid the groundwork for the growth we have enjoyed over the last several years.

Mr. Caldwell, in his presentations, talks about Urbana being “patient capital” and that has absolutely been true with us. We have been able to make investments in a variety of aspects of our business, including in trading technology and adding personnel to meet the increased pace of applications in response to the regulatory challenges this posed. We moved into our new premises in First Canadian Place at the end of January and are in the process of building a presentation centre there that will be used to host listed companies for a ceremony on their first day of trading, and also to recognize key milestones our issuers achieve.

While these investments may have been done at the expense of short-term profitability, we are again positioning the exchange to support even higher levels of growth in the future. Our shareholders have been very, very supportive.

It is definitely the spirit at the CSE to always be looking to do things better. What are you doing to keep momentum going in terms of growth and building the brand?

As people who follow our Instagram and Twitter accounts know, we have been racking up the frequent flyer miles over the past couple of years. There is a concerted effort by the team to get out there and tell the story of the Canadian Securities Exchange to influencers, be it lawyers, accountants or investment dealers and bankers. We’ve been doing a lot of work with the community to ensure they understand who we are and what our value proposition is. We also, of course, engage in direct sales work with individual companies that are looking to access the Canadian public capital markets.

That has been a big part of our success over the last few years, but the thing that I think truly sets us apart from most securities exchanges – not just in Canada but around the world – is that we are the only start-up exchange in recent memory that has really had an impact on the local capital market. People see that and see the success we’ve had and understand that it reflects the CSE team’s experience, knowledge and commitment to customer service.

The other thing I attribute it to is the fact that we are entrepreneurs ourselves. I have noted in past interviews how most of the team here has been through the lean times and worked with us through multiple fundraising efforts. We have done exactly the same thing that the entrepreneurs who come to us to list their companies do.  We’ve done the investor pitch decks, we’ve signed the NDAs, we’ve done the presentations, we’ve had the door slammed in our face.  That gives our team insight into the challenges that an entrepreneur faces as they try to raise money to achieve their business goals. Understanding where they are and knowing that we have been in their proverbial shoes builds an energy around the organization that people sense and really take a high degree of comfort in.

We’re doing all of the other things I mentioned, such as building a presentation centre for listing ceremonies. We built a podcast studio and are releasing podcasts at a furious rate through the various media we use to distribute them. Our initiatives via the Internet and social media are developing a real following.

It’s not any one thing, I think it’s a combination of all those things that gives people the sense that we are on the right track and that this organization is really going places.