Writes Bill Peters: "The corporate-gymnastics maneuver known as the reverse takeover has become the marijuana industry's preferred path to going public in Canada. That deal, in which a private company absorbs most of a public one, gives smaller Canadian producers access to capital. For US businesses, it offers an avenue to a fully legal market. There's just one problem: As cannabis and blockchain businesses race for cash in Canada, observers see signs of a thinning supply of public companies, free of legal baggage and liabilities, that could be used easily as vehicles for prospective owners.... amid the rush of blockchain and marijuana companies to scoop them up, the remaining "clean" shell companies find themselves with greater influence."
Says Jonathan: "There's certainly been more leverage being put into the hands of some of these shell companies, particularly for U.S. cannabis businesses."
(A recent report by the firm notes that frequent use of shell companies has led to shortage while demad has spiked, meaning that available shell companies have greater ability to negotiate better, higher-priced deals for themselves.)
The article goes on to note that "a marijuana company seeking to go public also has to appease shareholders of the public company it's acquiring. Increasingly, that means the private company's shareholders get a smaller piece of the pie once the deal closes."
Says Cam: "Because the shell company generally has existing shareholders which become shareholders of the post-RTO public company, the existing shareholders of the operating company acquiring the shell have their overall stake in the company reduced to accommodate the shareholders of the shell."