News on Monday was that the New York Stock Exchange, one of the largest exchanges in the world, is in talks with the U.S. Securities and Exchange Commission (SEC) in an effort to temporarily ease continued listing requirements for companies whose equities are traded on its platform.
Marijuana producers Aurora Cannabis (TSX:ACB)(NYSE:ACB) and HEXO (TSX:HEXO)(NYSE:HEXO) are some of the many NYSE-listed stocks that could significantly benefit from the said move if an OK signal is granted by the securities regulator.
Why Aurora Cannabis stock and HEXO stock?
For a company’s shares to continue trading on the New York Stock Exchange, the stock price should hold at or above US$1 per share, and the company’s global market capitalization should hold at or above US$50 million for 30 consecutive days.
Aurora Cannabis shares traded around US$0.80 on the NYSE at the time of writing, and HEXO stock exchanged hands at quotes around US$0.69.
Therefore, the two companies are already in breach of one of the exchange’s continued listing rules. It would be natural to expect them to be served with notices at any time in the future.
The NYSE’s welcome proposal
Companies worldwide are experiencing severe business disruptions. Some firms suspended all or part of their operations in compliance with social-distancing guidelines. Some saw business completely dry up, as the world grapples with the COVID-19 pandemic.
Share prices have plummeted in a market crash since late February, as the pandemic dampened investor enthusiasm.
Given the downward pressure on listed stocks, it’s the NYSE’s noble proposal that companies need to be given a reprieve. A waiver on minimum continued listing rules will be a good thing. It will allow management teams to avoid worrying about potential delistings from a top capital-raising platform.
Further, companies and the exchange will avoid the time consuming and expensive delisting processes.
Most noteworthy, some of the affected companies are mere victims of a general negative investor flight from equities markets; there weren’t any negative company-specific events that warranted their “punishment.”
That said, could we confidently say that Aurora and HEXO don’t have company-specific issues dragging their stock prices right now?
Perhaps not.
The cannabis industry has suffered from low to negative investor sentiment for months. Canadian pot firms started writing down inventories late last year while blaming government policy for the slower-than-expected market growth in Canada.
However, ACB and HEXO are facing well-documented liquidity challenges that dent their survival prospects during this capital dry spell, as investors take a flight to safety during the coronavirus pandemic.
The two troubled firms would welcome a relaxation of continued listing requirements on the major exchange as there was in 2009. Management will have one less critical matter to worry about for a few months.
