The cannabis market has begun 2019 with a big rally following a horrible Q4. The Global Cannabis Stock Index, managed by New Cannabis Ventures, gained over 44% in January after having dropped over 44% in the 4th quarter. With the bullish tone in the market, many investors are looking for new issues, specifically initial public offerings (IPOs), which we are seeing with increasing frequency as the capital markets have opened to cannabis companies.

Those looking to invest in new listings should be aware that most of them are not IPOs but rather reverse-mergers, or reverse takeovers (RTOs) as they are known in Canada, where these deals are taking place. True IPOs represent the first time stock has been offered to the public, while RTOs are a quicker way to go public by merging into a company that has already had its stock trading previously. In both cases, investors can sometimes buy in before the stock begins trading, often getting a better price than where the stock commences trading after the IPO or RTO. Most retail investors won't be able to access stock in advance of it trading public unless they are accredited investors who have a direct relationship with a Canadian investment bank.

Almost all of the new issues are being conducted in Canada. Typically, these stocks will also have stock tickers on the OTC, but this process can take from several days to many weeks. Some U.S. online brokers won't allow Americans to purchase the stocks in Canada for the first 40 days, especially on true IPOs.

The history to date for true cannabis IPOs has seen improvement. The initial debuts of three early IPOs, Innovative Industrial Properties in late 2016, CanniMed Therapeutics in late 2016 and MedRelleaf in mid-2018 were duds. Innovative Industrial Properties listed on the New York Stock Exchange after sharply reducing the size of its offering at $20 per share. the shares traded as low as $15 and then spent the next year below $20 but now trade above $60. CanniMed and MedReleaf sold off sharply after their IPOs, but those who held or bought in the secondary market were ultimately rewarded, as Aurora Cannabis bought both companies at significant premiums to their IPO prices.

More recently, true IPOs have been performing well. Just last week, SLANG Cannabis, a branding company best known for its O.penVAPE, began trading on the Canadian Securities Exchange after conducting an IPO for Units with shares and C$2.25 warrants at C$1.50 per  unit. The shares closed the week at C$2.41 after trading between C$1.64 and C$2.77. Plus Products, a California-based edibles manufacturer, also listed on the CSE after conducting an IPO at C$3.25 in October and traded  within the first few weeks as high as C$7.25. Charlotte's Web, which sells CBD products derived from industrial hemp, conducted an IPO at C$7.00 in September and shot up in its debut, never trading subsequently below C$9.05. The stock has gained more than 200% since the IPO. Canadian licensed producer Tilray, which conducted a NASDAQ IPO in July at $20 per share traded as high as $300 within months. Canadian licensed producer Green Organic Dutchman performed quite well after its IPO in May, rising from C$3.65  to over C$10 at one point. The stock traded well below the IPO price in Q4 during the market downturn and after some shares that had been previously restricted from trading were unlocked but managed to get back to the IPO price last month.

Another type of IPO, the special-purpose acquisition company (SPAC), has gained popularity. MTech Acquisition Corp (MTEC) listed on the NASDAQ and then announced the pending acquisition of cannabis software provider MJ Freeway, while two Canadian SPACs, Cannabis Strategies Acquisition Corp and Canaccord Genuity Growth Corp, have also both performed well following the announcement of pending acquisitions of American cannabis companies. In this case, investors buy into a company that has a finite amount of time to make an investment that must be approved by shareholders. If the SPAC is unable to consummate a transaction, it must return the money to the investors.

With the success of recent cannabis IPOs and the market rallying, there is considerable interest in upcoming IPOs. At New Cannabis Ventures, we launched a free resource to help investors stay on top of the calendar for new issues, including RTOs and IPOs, the Cannabis Stock IPOs and New Issues Tracker. The list currently includes 28 companies:

As soon as trading symbols and trading dates become available, we update the table to reflect this information. The list also includes links to the regulatory filings as well as to content on our site about the company, if available. Note that with the exception of just one stock, all of these issues will trade on a Canadian exchange as the primary listing.

The decision to invest in an IPO or RTO should be based upon a review of the business, the management team, the competitive landscape and the valuation, but investors and traders should also be aware of technical dynamics, like the size of the "float", which is the amount of stock that can actually trade. Often IPOs will have a very limited number of shares relative to the amount issued that can trade initially. Tilray, for example, sold 10.35 million shares, and these were the only shares that could trade for the first six  months, a favorable dynamic. The more recent SLANG IPO had a larger float.

Finally, there are newsletter writers out there hyping cannabis IPOs and touting potential returns that are not likely to be achieved, and I suggest investors take a realistic approach to allocating capital to cannabis IPOs and RTOs. Tilray was the exception, not the rule, and it's important to have realistic expectations. For those that can get in truly on the ground floor (before trading begins), it's a better deal typically than being a buyer on the first day, as that initial trading price is almost always at a premium to the IPO price. For those buying on the first day, be aware of the potential for a bad deal. The recent meltdown in Q4, with several RTOs breaking down horribly, should be a warning to investors that buying new issues isn't without risk. Many of these deals, like Acreage Holdings, Curaleaf and MJardin Group lost more than half their value in a short period of time, with some others dropping substantially as well. Given the history of cannabis IPOs that perform poorly initially bouncing back ultimately, investors should perhaps consider some of these companies for investment as well.

Cannabis IPOs and RTOs may offer investors strong returns if the cannabis market continues to rally. Reading prospectuses and filing statements, understanding the float and avoiding over-paying after the stock begins trading are all essential to those buying new issues.