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(Editors' Note: This article covers micro-cap stocks. Please be aware of the risks associated with these stocks.)

One of the catalyst that effect stock price is liquidity. And, one of the determinants of liquidity is exchange listing. Companies can see an effect on stock price depending on where the security is traded, particularly when there is a change of venue. I had this fact re-enforced a number of years ago.

A Historical Example - Rare Element Resources (NYSEMKT:REE)

In the summer of 2010, I had taken a small speculative position in some rare earth miners, including a small Canadian prospector traded on the Toronto exchange. I did not carefully follow the position, as it was a satellite holding in my portfolio, and so was caught off guard when my open sell limit order was canceled. Come to find out, the company was uplisting on AMEX.

I re-entered my sell order using the new symbol and received a fill a few days later. I had bagged a double. But, over the following weeks I watched as the stock doubled again and again, peaking at more than 10 times my initial purchase price. But, there was no fundamental reason for the price climb. It was simply the uplisting to AMEX and speculation that caused the surge in stock price. So, the price eventually returned to a more reasonable price level.

Introduction

This article will look at and summarize the listing standards for the major U.S. exchanges, including NYSE, NASDAQ, and AMEX. It will then compare those listing standards to the financial and market data of certain OTC or pink sheet traded companies popularly associated with the cannabis industry. This will help us determine the reasonability of uplisting.

Retail investors should understand that initial listing requirements for the major exchanges are set by the exchanges themselves and are higher or more stringent than the standards set to maintain a listing on the exchange. To relate, think of your brokers' margin requirements. Initial purchases usually require a higher margin percentage (50%). After the purchase is made, margin percentage is held to a lower standard (25%). Investors should also keep in mind that failure to meet exchange standards does not result in immediate delisting.

Listing Requirements

NYSE Listing Requirements

In order for a stock to list on the NYSE it must meet certain criteria, including a minimum price of $4 per share, 1.1 million shares outstanding with a market value of public shares in excess of $40 million, and a minimum of 400 round lot shareholders. In addition to the liquidity requirements, the company must also meet one of the following financial criteria:

  1. Aggregate pre-tax income for the last 3 years of at least $10 million with a minimum in the most recent year of at least $2 million and a minimum in the next most recent year of at least $2 million. Pre-tax income must be positive in all 3 years.
  2. Aggregate pre-tax income for the last 3 years of at least $12 million with a minimum in the most recent year of at least $5 million and a minimum in the next most recent year of at least $2 million.
  3. Global Market Capitalization of at least $500 million, revenues (most recent 12-month period) of at least $100 million, and aggregate adjusted cash flow for the last 3 years in excess of $25 million. All 3 years of adjusted cash flow must be positive.
  4. Global Market Capitalization of at least $750 million and revenues in the most recent fiscal year of at least $75 million.
  5. Global Market Capitalization of at least $150 million, with total assets of at least $75 million and stockholders' equity of at least $50 million.

NASDAQ Listing Requirements

The NASDAQ Stock Market has three listing tiers: Global Select Market, Global Market, and Capital Market. Because the listing requirements for NASDAQ Capital Market are the least restrictive, we will focus on those specific requirements.

In order for a stock to list on NASDAQ it must meet certain criteria, including a minimum bid price of $4 per share, 1 million shares outstanding, at least 3 market makers, and a minimum of 300 round lot shareholders. In addition to the liquidity requirements, the company must also meet one of the following financial criteria:

  1. Stockholders' equity of at least $5 million with the market value of publicly held shares in excess of $15 million, and at least 2 years of operating history.
  2. Stockholders' equity of at least $4 million with the market value of publicly held shares in excess of $15 million and a total market value of at least $50 million.
  3. Stockholders' equity of at least $4 million with the market value of publicly held shares in excess of $15 million and net income from continuing operation of at least $750,000 per year in the latest fiscal year, or in two of the past three fiscal years.

AMEX Listing Requirements

AMEX has the least restrictive financial standards for listing. In order to list on AMEX, it must meet one of the following criteria:

  1. Have a pre-tax income in the most recent fiscal year or in two of the prior three fiscal years in excess of $750,000, a market value of the public float in excess of $3 million, a minimum stock price of $3, and total shareholders' equity in excess of $4 million.
  2. Have a market value of the public float in excess of $15 million, a minimum stock price of $3, two years of operating history, and total shareholders' equity in excess of $4 million.
  3. Have a total market capitalization in excess of $50 million, a market value of the public float in excess of $15 million, a minimum stock price of $2, and total shareholders' equity in excess of $4 million. The company must also meet a minimum number of round lot shareholders relative to the number of shares available in the public float.
  4. Have a total market capitalization in excess of $75 million or have at least $75 million in both assets and revenue, a market value of the public float in excess of $20 million, and a minimum stock price of $3.

The Potential for uplisting

Now that we have looked at the initial listing requirements set forth by the U.S. major exchanges, we can compare both the liquidity and financial standards to certain OTC stocks that are commonly associated with the burgeoning cannabis industry.

There has been a lot of interest lately in these companies due to the names or press releases that mention or allude to medical marijuana/cannabis, or because of investor perceptions that they are associated with that industry. Therefore, below is a table with data gleaned from the companies' latest annual reports (10K) available on OTC Markets. Investors can compare the information contained in the table with the above listing requirements to determine which, if any of these stocks may be candidates for uplisting onto a major exchange.

Retail investors should note that some of the information contained in the table is dated, as many of these companies have yet to file an annual report for 2013.

CompanyMJNAHEMPPHOTCBISGRNHNVLXLATFFITXTRTCERBBAVTCDEWMENDOEAPHREFG
Assets$12,534,000$2,385,000$1,279,000$1,107,000$27,000$2,877,000$1,036,000$2,821,000$386,000$4,418,000$24,591,000$145,000$0$700,000$382,000
Shareholder Equity$16,300,000$1,683,000($337,000)($2,169,000)($147,000)($1,501,000)($9,880,000)($243,000)($461,000)($2,354,000)$21,135,000($755,000)($1,499,000)$147,000$244,000
Stock Price$0.30$0.14$0.37$0.17$0.46$0.43$0.01$0.08$0.52$0.03$3.78$0.02$0.09$0.05$0.24
Shares Outstanding947,607,9611,649,949,3877,118,555,833761,323,906150,965,723593,411,3481,809,425,3143,405,969,548123,577,6463,457,676,99616,459,8411,638,150,31167,886,647224,712,99775,178,431
Float411,045,323unknownunknownunknown25,757,755unknown1,567,569,9732,295,374,72448,000,0003,191,885,389unknown595,745,696unknown198,255,00015,148,731
Market Cap$282,387,172$222,743,167$2,611,798,135$130,947,712$68,840,370$255,166,880$14,475,403$262,600,252$64,260,376$101,655,704$62,218,199$24,572,255$5,974,025$10,516,568$18,042,823
Market Value of Public Float$122,491,506$222,743,167$2,611,798,135$130,947,712$11,745,536$255,166,880$12,540,560$176,973,391$24,960,000$93,841,430$62,218,199$8,936,185$5,974,025$9,278,334$3,635,695
Total Revenue$11,872,000$9,000$1,451,000$37,000$7,000$12,000$267,000$2,363,000$533,000$49,000$15,342,000$521,000$0$0$0
Aggregate Earning$4,664,300($17,341,000)($2,635,000)($32,531,000)($1,174,000)($4,895,000)($13,507,000)($5,357,800)($8,138,000)($3,088,000)$2,212,000($4,121,000)($10,596,000)($353,000)($3,077,000)
Recent Earning$7,107,000($16,459,000)($2,186,000)($16,038,000)($429,000)($1,598,000)($47,000)($5,549,000)($5,836,000)($766,000)$826,000($4,121,000)($3,311,000)($183,000)($114,000)
Next Recent Earnings($62,700)($882,000)($397,000)($8,339,000)($745,000)($189,000)($66,000)$810,900($2,273,000)($1,138,000)$1,364,000$36,000($1,981,000)($113,000)($29,000)
Pretax Income$12,145,500($16,576,000)($1,271,000)($16,633,000)($164,000)($1,684,000)($47,000)($4,640,000)($5,772,000)($687,000)$1,043,000($4,073,000)($743,000)($183,000)($108,000)
Aggregate Cash Flows($2,716,672)$2,000($15,000)$23,000$1,000($169,000)($68,000)$36,000($46,000)$4,119,000($494,000)($47,000)$347,000($3,000)$238,000
Meets AMEX ListingNoNoNoNoNoNoNoNoNoNoYesNoNoNoNo
Meets NASDAQ ListingNoNoNoNoNoNoNoNoNoNoNoNoNoNoNo
Meets NYSE ListingNoNoNoNoNoNoNoNoNoNoNoNoNoNoNo

Summary

Medical Marijuana, Inc. (OTCPK:MJNA) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity and cash flows.

Hemp, Inc. (OTCPK:HEMP) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, earnings, and cash flow.

Growlife Inc. (OTC:PHOT) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, earnings, and cash flow.

Cannabis Science, Inc. (OTCQB:CBIS) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, earnings, and cash flow.

GreenGro Technologies, Inc. (OTCPK:GRNH) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, earnings, and cash flow.

Nuvilex, Inc. (OTCQB:NVLX) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, earnings, and cash flow.

Latteno Food Corp. (OTCPK:LATF) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, earnings, and cash flow.

Creative Edge Nutrition, Inc. (OTCPK:FITX) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, earnings, and cash flow.

Terra Tech Corp. (OTCQB:TRTC) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, earnings, and cash flow.

Tranzbyte Corp (OTCPK:ERBB) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, and earnings.

AVT, Inc. (OTCPK:AVTC) - The company seems to meet the listing requirements for uplisting to the AMEX exchange. Assuming the market value of the publicly available float is in excess of $15 million, it has a current price above $3 and more than $4 million in shareholder equity.

Dewmar International BMC, Inc. (OTCPK:DEWM) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, and earnings, and cash flow.

Endocan Corporation (OTCPK:ENDO) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, and earnings, and cash flow.

Easton Pharmaceuticals, Inc. (OTCPK:EAPH) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, and earnings, and cash flow.

Medical Cannabis Payment Solutions (OTCPK:REFG) - The company does not meet the listing requirements for any of the exchanges, even if it was to do a reverse split to raise the per share price. The company also has inadequate assets, shareholders' equity, revenue, and earnings, and cash flow.

Conclusion

Although there has been a lot in interest in these companies' stocks, and although there have been a number of question and comments floating around the comment boards and investor websites, the harsh reality is that practically none of these companies are capable of uplisting onto a major exchange.

Some of these companies may move closer to meeting requirements once a new 10K is filed for 2013, but for the most part they are still years away from potentially uplisting. In addition to time, most of these companies will have to suffer shareholders with reverse stock splits and dilution to increase assets and shareholder equity enough to qualify.

If your dream as an individual investor is to see your company uplist onto a major exchange, wake up. Your expectations are too high.

Source: Cannabis Stocks' High Hopes Of Uplisting