In an unexpected move on Tuesday, one of Canada’s largest marijuana firms Aphria (TSX:APHA)(NYSE:APHA) announced that it is moving its U.S. stock listing from the New York Stock Exchange (NYSE) to the Nasdaq Global Select Market effective on Monday, June 8.
Aphria’s stock listing migration will take place soon after the firm closes its fiscal year 2020 financial books on May 31, and the motivation appears to be mainly financial.
Financial considerations in Aphria stock migration
“This move is a reflection of our ongoing commitment to find cost-effective ways of operating…” the company’s CEO Irwin D. Simon commented in the Tuesday press release. I’m in agreement. The NYSE is one of the oldest and most prestigious exchanges in the world, but annual listing costs on this exchange are very expensive.
The minimum annual fee for a continued listing on the NYSE is US$71,000 (CA$98,000) in 2020. However, billing is done on a per-share basis, and the per-share charge is US$0.00113 in the calendar year 2020. Aphria has over 286,004,529 in shares outstanding. It’s most likely that the company was expected to pay over US$323,000 (or CA$449,000) to the NYSE this year. Fees usually escalate every year.
In comparison, the NASDAQ fees are in bands depending on the number of listed shares. APHA’s shares fall in the “above 150 million” category, and the company could pay NASDAQ some US$159,000 (CA$221,000) annually.
Therefore, the company could save more than $228,000 in annual listing expenses by shifting to the NASDAQ. The cost savings represent 4% of last quarter’s adjusted EBITDA.
Propping up an ESG score?
Interestingly, the company’s management believes that the “NASDAQ will be a good fit” for the company given its focus on integrating good environmental, social, and governance (ESG) principles across its business processes.
Regrettably, marijuana has been stigmatized for decades in North America. It’s amusing that a perceived “sin” stock is pitching about ESG smartness to the investing community. Perhaps ESG-sensitive investors will listen to Mr. Simon’s pitch.
That said, the NASDAQ is indeed a home to the world’s largest, innovative, and most profitable cash flow rich firms that include Apple, Microsoft, Amazon, and Facebook. No doubt, these are some of the best ESG stocks to own for fund managers who are sensitive to ESG scores on individual holdings.
Notably, a majority of NASDAQ-listed firms are conscious of ESG issues, and Aphria will soon be counted among them.
Does this change Aphria’s stock valuation?
Perhaps the annual listing cost savings are too small for a $1.5 billion firm to justify the move. However, Canadian marijuana growth stocks need all the cost savings available to them right now.
Cannabis investor focus has shifted from parabolic sales growth rates to positive operating earnings and cash flow generation. If small cost savings on annual listing fees can help the company boost its profitability metrics towards an elusive adjusted EBITDA goal, then a NASDAQ move is welcome.
Most noteworthy, ESG investing is fast becoming an integral aspect of asset selection in many institutional investing portfolios. Norway’s US$1 trillion wealth fund recently blacklisted some Canadian oil sands securities for their unacceptable greenhouse gas emissions.
That said, the firm will not significantly boost its share price just by looking cosmetically greener today. However, the cannabis industry’s carbon footprint does need attention. APHA’s management is highlighting an important qualitative investing and global sustainability issue.
Most noteworthy, to anyone who remembers Aphria’s late 2018 scandal, the company’s mention of ESG sounds like a commitment to corporate governance best practices … and that calms many investors’ nerves. However, this doesn’t mean that NYSE-listed firms rank lower than their NASDAQ counterparts on corporate governance quality.