24 May Nasdaq Rejects Cannabis Company

In a significant but not entirely unexpected or surprising blow to the cannabis industry, the Nasdaq stock market has decided to reject the attempt by MassRoots, a social networking site for cannabis enthusiasts, to list on their exchange. The reason: because they may be deemed to be aiding and abetting a federal crime in the distribution of cannabis. MassRoots plans to appeal the decision to a higher level Nasdaq board.

Denver-based MassRoots has nearly 1 million users, according to its recent 10-K filing. The founder is 23-year old Isaac Dietrich, who expressed outrage at the Nasdaq’s decision. The company had about $200,000 of revenue and about an $8 million loss in 2015. Not surprising for a social media site building its user base before focusing on revenues. Not sure whether this is the company Nasdaq would have preferred be the first cannabis business to list there from a financial point of view, but there you are (disclaimer: my law firm has no involvement with the company).

The SEC and FINRA have decided not to block cannabis companies from going public or trading their stock. But the national exchanges have wide subjective discretion in making decisions about listing. Will there continue to be hurdles like this for the industry as long as marijuana remains a Schedule 1 drug and illegal to sell and distribute under federal law? We all know the answer. It will be interesting to watch MassRoots’ appeal, or see what happens when a near-unicorn in the industry wants to get listed.