Keep It Real MassRoots: Nasdaq Denial Was Justified

MassRoots, Inc., holds itself out as the “Facebook” of the cannabis industry. The site provides a platform for users to connect with their “buds,” post pictures of pieces and weed, and read articles about the cannabis industry. Check out MassRoots’ website or Twitter feed and one will quickly realize that the company has fully embraced the “stoner culture.”

Don’t get me wrong – I certainly cannot judge. I am a cannabis lawyer after all and fully support innovative companies seeking to legitimize the industry. However, if the cannabis industry, our industry, wants to be seen as legitimate it must act accordingly. That is why the recent outrage surrounding the Nasdaq’s decision to deny MassRoots’ listing application has left me slightly irritated and confused. Bloggers galore and even well known cannabis associations have expressed disgust with the Nasdaq’s affront on the cannabis industry. But why?

Of course, all of this stems from the comments made by MassRoots’ CEO, Isaac Dietrich, shortly after receiving Nasdaq’s denial when he stated “[w]ith this decision, the NASDAQ has set a dangerous precedent that will prevent nearly every company in the regulated cannabis industry from listing on a national exchange. This will have ripple effects across the entire industry, making it more difficult for cannabis entrepreneurs to raise capital and slow the progression of cannabis legalization in the United States.”

As a bit of background ---

In August 2015, MassRoots filed a registration to become listed on the Nasdaq stock exchange. On May 24, 2016, MassRoots issued a press release indicating that the Nasdaq had denied its listing application. According to the press release, “[t]he Nasdaq determined that as MassRoots may be deemed as ‘aiding and abetting’ the distribution of an illegal substance under Federal law, they are unwilling to proceed with MassRoots’ listing application.”

In full disclosure, I have not seen Nasdaq’s denial letter to MassRoots. I’ve searched the internet far and wide, even contacted Nasdaq, but still cannot get my hands on a copy of the letter. Also, it is worth pointing out that I am not a securities lawyer. So my understanding of the listing process is rather limited. Regardless, the thing that has been bugging me is the fact that MassRoots is painting this picture that the Nasdaq is treating the cannabis industry in an unfair manner.

According to Nasdaq’s Listing Guide:

“The Nasdaq Stock Market has three distinctive tiers: The Nasdaq Global Select Market® , The Nasdaq Global Market® and The Nasdaq Capital Market® . Applicants must satisfy certain financial, liquidity and corporate governance requirements to be approved for listing on any of these market tiers. As illustrated in the following tables, the initial financial and liquidity requirements for the Nasdaq Global Select Market are more stringent than those for the Nasdaq Global Market and likewise, the initial listing requirements for the Nasdaq Global Market are more stringent than those for the Nasdaq Capital Market. Corporate governance requirements are the same across all Nasdaq market tiers.

It is important to note that even though a company’s securities meet all enumerated criteria for initial inclusion, Nasdaq may deny initial listing, or apply additional conditions, if necessary to protect investors and the public interest.”

Per MassRoots’ filings, it sought to be listed on the Nasdaq Capital Market. As noted above, this tier has the least stringent standards, however, applicants still must satisfy relatively demanding financial and liquidity requirements. Moreover, applicants must satisfy all of the criteria in order to be approved for listing. MassRoots’ filings can be found here or on MassRoots’ website.

Not to make this more complicated than it needs to be, but within the Nasdaq Capital Market tier there are three different standards upon which a company can base its application. It is obvious, however, that under any of the three standards MassRoots’ application was doomed for denial.

MassRoots was required to prove at least $4 million in Stockholders’ Equity

Per MassRoots’ filing there was a total of $316,737 in Stockholders’ Equity as of December 31, 2015 and a deficit in Stockholders’ Equity in the amount of $363,141 as of March 31, 2016.

MassRoots was required to have at least 300 shareholders

Per MassRoots’ filing, as of March 30, 2016, there were 90 shareholders of record.

MassRoots was required to have a bid price of at least $4

Per MassRoots’ filing, as of March 30, 2016, the last reported sale price was $1.38 per share.

There may have been additional inadequacies in MassRoots’ application, however, the examples above will suffice to prove the Nasdaq’s denial was justified since applicants must satisfy all criteria.

Upon receipt of the denial, MassRoots’ CEO indicated that it would appeal the denial. In its May 24, 2016, press release, Mr. Dietrich stated, “We believe the Nasdaq has inappropriately denied our application and look forward to making our case not just to the Nasdaq Listing and Hearings Review Board, but directly to the American public.”

How’d that appeal go? I’ll tell you. On June 7, 2016, MassRoots requested to withdraw its application from the Nasdaq. Since the denial, I have been waiting to see MassRoots' response.

The bottom line is this – MassRoots’ attempt to list with the Nasdaq was nothing more than a publicity stunt. Not only was it beyond obvious that MassRoots failed to meet numerous financial requirements, but the cost to become listed on the Nasdaq is well beyond MassRoots’ means. In order to be listed on the Nasdaq Capital Market, MassRoots was required to submit a $5,000 application fee and an additional $75,000 entry fee prior to its first day of trading.

To put this in perspective, MassRoots was operating at a net loss of $8,472,898 as of December 31, 2015. Total cash on hand as of March 31, 2016 was $413,610. I find it difficult to believe MassRoots was willing to spend nearly 20% of its cash on an application it knew, or should have known, was doomed for failure.

If this was nothing more than a publicity stunt than it seems to have worked. The industry was outraged. MassRoots received its 15 minutes of fame. However, such conduct only works to the detriment of legitimizing the cannabis industry. I don’t mean to “harsh your mellow,” but, if our industry wants to be taken seriously we need to act accordingly.


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The choice of a lawyer is an important decision and should not be based solely upon advertisements.

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