Photo courtesy of the Toronto Star
The fact that cannabis is legal in many states in the U.S. while still being illegal at the federal level has caused uncertainty and confusion for many Canadian companies over the extent in which they can be involved in the U.S cannabis industry.
That’s why on Oct. 16th, the Canadian Securities Administrators released a notice, available here, that detailed their “disclosure expectations” for any Canadian companies engaged in cannabis-related activities in the U.S.
On the same day, the TMX Group, the operators behind the Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSX-V), said that Canadian companies risk delisting if they violate American federal law- which effectively bans any Canadian company from being involved in any cannabis-related activities in the U.S., if they want to be listed or maintain their listing on the TSX or TSX-V.
But the TSX and TSX-V aren’t Canada’s only stock exchanges
While the TMX Group’s heavy-handed approach has Canadian companies with ties to American cannabis worried, there are other options such as the considerably more cannabis-friendly Canadian Securities Exchange, as CEO Richard Carleton told Business in Vancouver, “We see the matter differently. We regard the issue as of one of disclosure”, which is more in line with the position of the Canadian Securities Administrators.
The CEO of Aphria Inc., one of Canada’s largest licensed producers that trades on the TSX with a market cap of $1.01B, told CBC, “If the company cannot reach a compromise, there are options, including a spin-off of [our] U.S. activities to be listed on the CSE.”
It is worth noting that the TSX is Canada’s largest stock exchange and 9th largest in the world by market capitalization, which is a major incentive for companies to obey their rules.
The Canadian Securities Administrators’ disclosure requirements
The Canadian Securities Administrator’s disclosure requirements are meant to inform potential investors about the risks inherent in the American cannabis industry, given that cannabis is still illegal under federal law, regardless if it’s legal in multiple states.
The disclosure requirements include:
- Describe the nature of the company’s involvement in the American cannabis industry, and whether the company’s involvement is direct, indirect, or ancillary
- Explain that cannabis is still illegal under federal law in the U.S. and the laws and enforcement are subject to change at any time
- Discuss the accessibility of private and public capital, and the financing options that may or may not be available
These disclosure requirements are meant to inform potential investors about the risks inherent in the American cannabis industry, such as the constant threat of federal authorities raiding businesses, seizing assets and prosecuting the owners and employees.