January 25, 2017

Fast Times at the NYSE: 1st Marijuana-Related Company Listed

Okay, I really had a lot of fun thinking about possible titles for this blog – “Harold & Kumar Go to Wall Street”, “Jay & Silent Bob Get on the Big Board”, “Dazed & Confused & Listed”, “Cheech & Chong’s Up in Smoke in Heavy Trading”. . . I could go on, and definitely would if I was back sitting in a college dorm room with my buddies.

Anyway, this Duane Morris blog points out a milestone in the history of the NYSE – the listing of its first cannabis-related stock:

In a major positive step for the cannabis industry, the New York Stock Exchange last month listed a new real estate investment trust called Innovative Industrial Properties (NYSE:IIPR), the first cannabis company to be listed on a US national exchange. The company plans to invest solely in real estate intended to be leased out to cannabis growers. In the IPO they raised $67 million, much less than expected. The price has not moved above the IPO price, but it has moved steadily up recently after an initial drop on its first few days of trading.

Earlier in 2016, Nasdaq rejected the listing application of MassRoots, a Facebook-like social networking platform for . . .uh. . . stoners.  Nasdaq apparently was concerned that listing the company could be seen as aiding the distribution of an illegal substance.

Broc recently blogged about the legal uncertainties – for both companies & lawyers – associated with doing a marijuana-related deal.  These uncertainties may increase with the new Administration.  Attorney General nominee Sen. Jeff Sessions is strongly opposed to marijuana legalization, and as Duane Morris notes, that may make marijuana’s status in the states that have legalized it even more tenuous:

Congress has kept the feds from using money to go after those properly complying with state cannabis laws. But those actions, in appropriation bills, have to be renewed each year, and recent parliamentary changes may make that more difficult. The key question will be whether Trump allows Sessions free rein on the issue. That’s the unknown.

I like to think of this as the “Battle of the Jeffs” – Jeff Sessions vs. Jeff Spicoli from Fast Times at Ridgemont High.  In the long run, I guess my money’s on Spicoli, but in the short-term, I’m not underrating Sessions.

Director Removal: Delaware Nixes Supermajority Requirement

Yesterday, the Chancery Court invalidated a corporate bylaw requiring a vote of 2/3rds of the outstanding shares of a Delaware corporation to remove a director. In Frechter v. Zier, Vice Chancellor Glasscock held that the provision was inconsistent with the requirements of Section 141(k) of the DGCL – which generally provides that any or all of the directors may be removed without cause by a majority of the outstanding shares.

Vice Chancellor Glasscock rejected the defendant’s contentions that the relevant language of Section 141(k) was permissive, & concluded that the removal provision was inconsistent with the plain language of the statute:

The DGCL is, broadly, an enabling statute. Section 109(b) of the DGCL states, in relevant part, that “[t]he bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders . . . .”

Section 141(k) of the DGCL, however, provides that “[a]ny director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors” subject to two exceptions not pertinent here. The Plaintiff asserts persuasively, that the bylaw in question is “inconsistent with law,” and thus not permitted under Section 109(b).

As Broc blogged last year, the Chancery Court had previously invalidated charter & bylaw provisions that purported to make directors removable only for “cause” – holding that such a limitation was only permissible for companies with classified boards or that allowed for cumulative voting.

The Year in PIPEs

This MoFo blog and infographic reviews the year in “private investment in public equity” or “PIPE” deals. PIPEs have long been a capital-raising alternative when the public markets are inhospitable, and issuers in several out-of-favor sectors – including biotech, mining & energy – turned to them last year. Nearly $52 billion was raised in PIPE offerings during 2016 – a 27% increase over the $41 billion raised in 2015. The number of deals rose more than 12%, from 1,066 in 2015 to 1,199 in 2016.

John Jenkins