What happens when a cannabis stock is delisted?

Published Sep 5, 2022 09:00 a.m. ET
iStock / Darren415

Cannabis stocks were a hot commodity in the first year following legalization, but with so much turmoil in the market, some investors are hesitating. To date, several green stocks have fallen and been delisted, including CannTrust Holding Inc, Arena Pharmaceuticals, Aphria Inc, GW Pharmaceuticals, NIC Inc, Pyxus International Inc, Therapix Biosciences Ltd, but what does that mean exactly, and is it something you as a potential buyer of stocks have to worry about?

What happens to cannabis stocks after delisting?

A delisting won’t immediately impact shareholders' agreements with the company. However, it typically reduces the value of the shares, making them much more difficult to sell. From here, the success of the businesses determines whether or not the price of the stock will go up or down, but most begin to sink almost immediately.

Can a delisted cannabis stock come back?

It is possible for a stock to come back after delisting, but it is incredibly rare, as certain conditions must be met before this can happen. Typically, companies only reemerge after an intense restructuring when delisting is part of the bigger plan. So if this happens to your investment, it’s probably not worth waiting around for a grand re-entrance.

Do you lose money if your cannabis stock is delisted?

Delisting won’t eliminate the value of your shares. However, it will decrease their value to others who might be interested in buying them. So while the process doesn’t directly impact shareholders or price, the label alone is often enough to make the value of a delisted stock begin to plummet.

Can you sell a delisted cannabis stock?

Unfortunately, delisted shares cannot be sold on BSE or NSE, but you do still own them which means that you have the right to sell them outside of the stock exchanges. Even if a company goes private, as long as legal contracts are put into place, a sale may proceed.

The benefits of delisting

Cannabis stocks may be delisted voluntarily, or at the discretion of the stock exchange. The most common reason for the latter occurs when stocks drop lower than $1.00 per share, but companies may also choose to delist if they’re restructuring, going private, or planning to move to a different jurisdiction, as there are some benefits to doing so.

Nasdaq requirements

Every successful company has a shot at getting listed on the Nasdaq, but they must meet and maintain certain requirements in order to do so including:

  • A minimum number of shareholders
  • Shares outstanding valued at a certain price
  • Meet minimum listing requirements such as maintaining a value of more than $1.00

These requirements are set out to protect investors while providing assurance of successful companies' track records. Those that make it on the Nasdaq generally have a stable corporate structure, good management and a credible business plan.

Are cannabis stocks still a good investment?

There are many green stocks on the market that have risen or at the very least – held steady in terms of growth over these last few turbulent years, so there’s no reason to think that cannabis isn’t a wise choice. Still, it’s important to do your research and be smart about these decisions.

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