UPDATE: Cboe Canada Could Be Verano’s Launching Pad to List on US Exchanges

This article was updated Oct. 18.

As the federal government dangles the possibility of reclassifying cannabis as a Schedule III substance, one of the largest publicly traded cannabis companies in the U.S. is now positioning itself to capitalize on future catalysts for the industry.

Verano Holdings, which has the third-largest market cap among U.S. plant-touching cannabis companies, behind Curaleaf Holdings and Green Thumb Industries, announced Oct. 3 it received conditional approval to list on Cboe Canada. The company's trading commenced Oct. 18 on the new platform. 

Courtesy of Verano

Launched in 2015 as the NEO Exchange, and acquired by Cboe Global Markets in 2022, Cboe Canada is the third most active marketplace in Canada, consistently representing close to 15% of all volume traded in Canadian-listed securities, according to the capital markets technology company.

Upon listing its Class A subordinate voting shares on Cboe Canada, Verano plans to delist from the Canadian Securities Exchange (CSE), where it began trading in February 2021, when the company first went public. This class of shares typically holds the power of one vote per share.

But why was Cboe Canada the right fit for Verano while other multistate cannabis operators are pulling the trigger on Toronto Stock Exchange (TSX) listings? Notably, TerrAscend Corp. began trading its common shares on the TSX in July, and Curaleaf announced in September a CA$16 million underwritten offering of subordinate voting shares in a move toward a potential TSX uplisting.

According to Verano Chief Investment Officer (CIO) Aaron Miles, at the heart of the company’s decision to pursue a Cboe Canada listing were two main factors: 1.) putting Verano in the best possible position to benefit should the U.S. Drug Enforcement Administration (DEA) reschedule cannabis; while 2.) also strengthening Verano’s independence from the need for regulatory reform should the current rescheduling effort fail to materialize.

“It’s not, ‘if the government does this, then we’re going to produce this,’” Miles said. “It’s the way that we build the business to be efficient for the here and now. And if we get all of these things to open up for us, you can imagine that we’re going to continue to accelerate our presence in the U.S. cannabis space.”

Miles began working with Verano as the company’s head of investor relations in September 2020 before taking the CIO reins in 2021. He previously worked as the Midwest Region head of the New York Stock Exchange (NYSE) in 2019 and also spent time working in investor relations for CME Group, Abbott Laboratories and Navigant.

Here, Miles pulls back the curtain on why Verano decided to pursue a Cboe Canada listing, and what it could mean for the future of the company.

Tony Lange: What’s led up to this point of Verano listing on Cboe Canada?

Aaron Miles: February 17th, 2021, was our first trading day. And before we went public, we evaluated all of the optionality that we had, right? The CSE was the known commodity and the NEO Exchange at the time started to call to say, “Hey, why don’t you consider us?” … Given my background at the New York Stock Exchange and the designated market maker model of the NEO at the time, I was like, “This is probably something that we need to pay attention to,” but it was almost too infant at the time for us to make the plunge. And so we went the CSE route, which we’re very appreciative of the CSE for allowing us to list our shares. It obviously really helped accelerate the growth of this industry. But I knew that wasn’t a final destination for us. So, really since February 17th of 2021, we were looking for what that next step was going to be.

TL: What went into Verano’s exchange evaluations since February 2021?

AM: Obviously, the ideal option would’ve been to just get right into the U.S., and we’ve seen all the back and forth with the D.C. folks about not allowing us to do that. So, I want to tighten up trading. I wanted to really look for better protections against predatory trading. And when the Cboe came in and acquired the NEO, that really got my attention, because I worked at CME Group back in the day. That’s more futures and derivatives on commodities and whatnot. Obviously, Cboe is the next street over from the CME, so I’m very familiar with the options and futures that they do on equities, but they're launching a tried true corporate listings business. And so, from a pure exchange perspective, NYSE, Nasdaq get the headlines. TSX is like a distant three. But the Cboe has one of the largest equity platforms in the world. It just didn’t have a really strong corporate listings business. Well, that’s changed. So, in the U.S. they launched a corporate listings business, and in Canada they bought the NEO Exchange. That’s when my mind started to go, “OK, we really need to look at this” because of the firepower behind the NEO now with the Cboe and their technological platform. That’s when it really started to change our mind.

TL: Why not the Toronto Stock Exchange (TSX)?

AM: For the TSX, it gets a really big headline, and I want to be careful here to not downplay it too much, but people who are putting the TSX in the same conversation as the NYSE and Nasdaq and saying, “Hey, we unlocked it, and we figured it out.” TSX is not the final destination either. And so the way that I characterize it is you have three players in the U.S.: You have the NYSE, Nasdaq, and you have Cboe U.S. now. And so, one way to think about it is we have senior exchange status on the Cboe Canada. We had to get opinion letters written. We had to position the company for the senior exchange status, which now positions us in the U.S. if uplisting is a possibility.

And we didn’t have to restructure the business. We didn’t have to acquire a foreign asset. It can be very costly, and it could be very time consuming. So for us to get senior exchange status, tighten up our trading, get index inclusion, and have a [link] to the U.S. through the Cboe U.S., we’ll take that all day long.

TL: At what point did Verno turn from “keeping an eye on” Cboe Canada to actually pursuing a path toward listing there?

AM: HHS [the U.S Department of Health and Human Services cannabis rescheduling recommendation to the DEA on Aug. 29, 2023]. You go down the path of rescheduling and you start to say, “OK, this is legit.” … If HHS was like, “This isn’t going to happen,” then we’d have to say, “OK, this is five years out, we really need to evaluate what we would look like as a Canadian company.” So that’s where you would do the heavy evaluation, TSX versus Cboe Canada, and do we go down this path and really start to beef up our foreign operations? And let me be really clear here, the TSX path, we’re not precluded from doing that, and we’re still evaluating what that path would look like. But again, we just think that this was the right step for us.

We were already really far down the line with Cboe, with our conversations—seeing what it could bring to the company—and when HHS announced the whole recommendation for rescheduling to III, we said, “You know what? It’s time to move away from the CSE and really tighten up our trading, and then really position ourselves for anything D.C. movements may bring.”

TL: Do you anticipate more U.S. cannabis companies moving from CSE to Cboe Canada listings in the coming months?

AM: I don’t think it would be out of the realm for other companies to evaluate where they’re at. And I would encourage them to do so, because we don’t have a lot of new money coming in. And this is one of the biggest components to inclusion into the U.S., is institutional dollars being able to invest in this space. I’ve seen reports that we’re 97%, 98% retail traded. That leaves you on an island alone, and you don’t have the firepower of some of these massive U.S. institutions coming in and really backing these stocks. So, I would encourage everybody to evaluate and continue to evaluate even when you make the move.

TL: How will listing on Cboe Canada help benefit Verano in the immediate near-term with regard to liquidity, capital, visibility, profitability, etc.?

AM: First of all, it’s really the seeking of a platform that is focused on hindering predatory trading. So, I think you’re going to see some tighter restrictions around that, how orders are routed, and they can get into a dark pool and then end up through the naked shorting world. There’s not a lot of restrictions on the CSE right now that are really targeting that. And I think you’re going to see maybe a little bit tighter, from a technological perspective, of predatory trading [prevention from Cboe]. But eligibility for the indices, that’s going to add to liquidity. Having a linkage to Commonwealth, which would be basically the Robinhood equivalent in Canada, better marketing and better visibility, and then really being able to tap into the Cboe network—not fully. You can’t be in the U.S. and in certain exchanges, but we’re now tapping into one of the largest equity platforms that is really operating in 26 markets. And so to be able to get into the network and then start to expand your reach, I think, is really where you’re going to see a lot of the benefit behind this.

TL: What are your anticipations with regard to attracting new investors to the cannabis space via your Cboe listing?

AM: They have all the incentive in the world. When you can start to get companies to migrate over to the exchange, you start to get the attention of new investors, you start to get attention of people who probably haven’t paid attention to the cannabis space. When we walk people through our financials, they think we’re a startup company, and we’re like, “We did $879 million in sales last year with 37% adjusted EBITDA margins.” [Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is a measure computed for a company that takes its earnings and adds back interest expenses, taxes, and depreciation charges, plus other adjustments to the metric.] And they almost don’t believe me. And I say, “We’re guiding $65 million to $75 million in free cashflow this year. And oh, by the way, we have to pay 280E taxes, which is about an $80- to $100-million-dollar impact.” And they’re like, “Will that drop to the bottom line?” And I’m like, “Yes.” So add that number to the bottom, and we’re a startup industry that’s cash only. And people go, “Well, why aren’t there more investors in this space?” And I’m like, “You tell me.”

TL: Would eliminating the 280E tax burden draw in more investors?

AM: You can make some assumptions here. I would say there is an opportunity for us to get so large if the industry continues to develop that companies, regardless of federal legality, will have to look at the space. So, there is an opportunity for us to get $80 million to $100 million (from the 280E tax burden) and just drop $80 million down to our bottom line or free cashflow. I mean, that’s $145 million to $155 million of free cashflow generation, not operating cashflow, but it’s literally operating cash minus our CapEx, and that’s dollars that are getting deposited back into the bank. And that’s unheard of for a cash-only business. And so, I think you’re going to get to a point where investors are going to have to pay attention to this space.

TL: Should the DEA reclassify cannabis to Schedule III, do you anticipate that Cboe Canada listed cannabis companies will be the first ones to transition to U.S. listings?

AM: I would say the quick path into the U.S. played a major role into us wanting to be a part of that [Cboe] network, right? … For somebody like us [to take the TSX route], we’d have to buy a [foreign] company, restructure the business, and then for us to get back into the U.S., you almost have to re-restructure your business, and you’re not under the TSX U.S. umbrella, because there isn’t one that exists. So you’re literally starting almost from scratch to get back into the U.S. And so, for us, I would anticipate a very smooth path into the U.S. because of the way that we are meeting this senior exchange status: We’re an SEC reporting company. And, again, we’re a familiar commodity and known commodity to the Cboe because we’re a part of this network now.

So, I make no assumptions that they’ll list us quickly. But I can tell you having that relationship and that strong tie into the Cboe network played a major, major role in our decision. And also, we can operate the way that we’ve always operated. We can issue shares to buy companies if we choose to do M&A, we can do equity raises, and we don’t have to finagle around some of the requirements that the TSX would have.

TL: Putting the possibility of rescheduling aside, let’s say it doesn’t happen. Does listing on Cboe Canada still help Verano become more independent of the need of regulatory reform in the U.S.?

AM: Yep, absolutely. And it’s for all the reasons that we talked about: better trading, better access to capital, tighter restrictions around predatory trading, a better platform to trade on. So, basically, you look at yourself as almost a quasi-private company when you don’t have a lot of new money coming in. And so, we were able to rack off quite a few acquisitions when we went public and build out our footprint. But things have been stagnant for a little while, right? There hasn’t been momentum in the markets, and there hasn’t been a lot of new money coming in. So, regardless of federal moves … the Cboe Canada as a standalone was the right move for us to make because it really enhanced our capital markets presence. So, absolutely … it was the right move to make, with or without federal movement.

This interview was edited for style, length and clarity.