Toronto Exchange Just Says No To American Marijuana

On Tuesday, the Toronto Stock Exchange issued a statement regarding cannabis companies that are listed on its exchange and are pursuing businesses in the United States. The exchange issued a bulletin saying that due to a significant number of inquiries that it had received about cannabis activities in the U.S. it was providing clarification.
The statement read, “The Exchange is aware that a number of U.S. states have legalized the cultivation, distribution or possession of marijuana to various degrees and subject to various conditions. Nevertheless, marijuana remains a Schedule I drug under the U.S. federal Controlled Substances Act. This means it is illegal under U.S. federal law to cultivate, distribute or possess marijuana in the United States.” The exchange noted that these companies could face money laundering issues with the U.S. government and that issuers that violate U.S. law are not complying with the exchange’s requirements.
There has been a flood of Canadian money coming down to the U.S. and making huge investments since they were flush with public market money. This is difficult news for some Canadian companies like Aphria (APHQF) which has jumped heavily into American businesses. Aphria stock slid 13% on the news yesterday. It may also affect other Canadian cannabis companies listed on The TSX, as well as the TSX Ventures Exchange that may have planned on entering the U.S. as part of its business strategy.
MedReleaf (MEDFF) took the opportunity to promote its purely Canadian strategy. “The TSX Staff Notice removes the uncertainty for issuers that were already adhering to the Requirements and validates our strategy of focusing on markets that are federally legal and offer federal regulatory guidelines,” said Neil Closner, CEO of MedReleaf.  “Until there is further clarity on the U.S. market at the federal level, we will focus on growth areas within Canada and elsewhere in the world that have federal regulations in place, minimizing risk to the business and our shareholders.”
The exchange is also separating its cannabis companies into two groups, which essentially boil down to whether the company “touches the plant” or not. The exchange is reaching out to its issuers before the end of the year to review the bulletin. It also strongly recommended that “applicants and listed issuers considering engaging in marijuana-related activities in the United States consult with the Exchange and consider the guidance in this Bulletin accordingly.”

The Canadian Securities Exchange seemed to be pretty happy with the news. It isn’t the behemoth that the TSX is and bills itself at the Exchange for Entrepreneurs. The CSE commented on the Canadian Securities Administration’s staff notice that pushed the TSX to make a change. “We are grateful to the CSA for issuing timely and carefully considered guidance regarding current and prospective reporting issuers focused on the U.S. cannabis sector,” commented Richard Carleton, CEO of the CSE. “This document provides significant comfort to these issuers that their Canadian listings will remain in good standing as long as they provide the disclosure that is rightly required by regulators.”

“We are also committed to ensuring that there is no disruption to the central clearing, depository and settlement services provided by these issuers. We are working with the relevant stakeholders on this matter and are very confident that companies will continue to have trades in their securities cleared and settled.”

Many of the Canadian cannabis companies have also listed shares in the U.S. with the OTC Markets Group, Inc. (OTCM). It may push some of these businesses out of the Canadian Markets to trade solely in the U.S. or leave the Toronto Stock Exchange to go to the Canadian Stock Exchange.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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