Ascend Wellness is going public at a $1.35 billion valuation. Its CEO says its IPO is a sign that the cannabis industry is growing up.

• Ascend Wellness Holdings, a US cannabis company, will begin trading on the CSE on Tuesday.
• CEO Abner Kurtin said he opted for an IPO over a reverse merger to attract top-tier investors.
• He said he wanted to take the 3-year-old company public to have a "currency" for acquisitions.

Abner Kurtin, the CEO of the newest US cannabis company to go public, said the once Wild West industry is growing up.

Shares of Ascend Wellness Holdings will begin trading Tuesday on the Canadian Securities Exchange after pricing its initial public offering at $8 a share. It raised $80 million in the process. The deal was led by the Canadian investment bank Canaccord Genuity and included Beacon Securities, Eight Capital, ATB Capital Markets, and Cormark Securities. Dorsey & Whitney LLP served as legal representation, according to securities filings.

The company's valuation is $1.35 billion.

While the company's stock will be listed in Canada, it's going public through a traditional IPO and will remain an American company, unlike its predecessors.

Most public cannabis companies in recent years listed on stock exchanges through a process known as a reverse merger or reverse takeover (RTO), where a private company purchases a publicly traded shell with no real revenue or executive team, Insider reported in 2019. In recent months, others have listed through special-purpose acquisition companies (SPACs).

Attracting 'top-tier' investors

Kurtin, who has managed billions of dollars throughout his career at hedge funds like the Baupost Group, said in a Monday interview with Insider that he chose the IPO route because he wanted to attract "top-tier" institutional investors to the company and the cannabis industry more broadly.

THC, the chief psychoactive compound in marijuana, is federally illegal in the US, so companies that sell or cultivate products containing THC by and large list on the CSE. The CSE is a secondary exchange based in Toronto - the more mainstream Toronto Stock Exchange won't list companies that distribute or sell cannabis directly in the US.

There is nothing specifically problematic about reverse mergers. They're often a much quicker pathway to the public market than a traditional IPO process - and they allow companies to avoid much of the scrutiny from the Securities and Exchange Commission, investment banks, lawyers, and the media that comes with an IPO.

The process was particularly popular in 2018 and early 2019, propping up what some industry experts said had all the hallmarks of a bubble.

Many of the companies that pursued these reverse mergers, like the cannabis retail chain MedMen, saw their stocks initially boom, only to crater. That forced some companies to lay off thousands of employees, sell off assets, and take out loans at high interest rates.

MedMen, for its part, let go of its founders and was forced to sell off a chunk of its assets in New York and other states.

"The RTO is a lower disclosure way of going public," Kurtin said. "It's kind of an out-of-date, early-stage way of going public. I don't think it makes sense anymore."

If a cannabis company wants to be taken seriously by big institutional investors like multibillion-dollar hedge or pension funds, Kurtin said, it needs to provide the transparency, corporate governance, and disclosures that those types of investors are used to.

"It's all part of this industry growing up," Kurtin said.

Prepping to uplist to US exchanges like the Nasdaq or NYSE

Though Ascend will be trading on the CSE like its peers, Kurtin said the advantage of going public via IPO was that it would remain an American company.

That will help pave the way for an eventual uplisting to a marquee exchange in the US like the Nasdaq or New York Stock Exchange, which would allow the company to tap a much deeper pool of investors as soon as regulators and the exchanges allow it. Ascend shares will also trade over the counter, or directly between entities, in the US.

Already, cannabis companies like Green Thumb Industries and others have filed with the SEC to uplist as soon as it's federally permissible. That could come sooner rather than later, as Senate Democrats led by Senate Majority Leader Chuck Schumer push to federally legalize cannabis.

The House passed the SAFE Banking Act, a narrow cannabis-reform bill, for the second time in April.

"We expect to be among the very first companies to uplist," Kurtin said. "And we think that's a huge advantage over a number of our competitors. We've spent the time and money, and we've done the work to be in that position."

Going after assets in states before they've legalized cannabis

For his part, Kurtin said the impetus for the 3-year-old company going public was not only to raise capital but also to use stock to fuel acquisitions.

Cannabis "is a consolidating industry," Kurtin said, adding: "We need a currency to go out there and buy things or potentially sell the company if we want to be part of consolidation that way."

Ascend already scooped up MedMen's lucrative New York assets in February, just a few months before lawmakers passed legislation to legalize cannabis in the state, Insider previously reported.

"We try to go after distressed assets," Kurtin said, adding that uncertainty around markets, like New York earlier this year, that haven't passed legislation to legalize cannabis "creates a real opportunity."

"There are some risks as well, but it's a tremendous opportunity," he added.

This story has been updated to reflect the correct valuation of $1.35 billion. The article initially stated $296 million.