BUD­DING IN­DUS­TRY

U.S. pot grower plants seed with Cana­dian list­ing

Calgary Herald - - FP CALGARY - SUNNY FREE­MAN

A Ne­vada-li­censed mar­i­juana pro­ducer is break­ing ground with a Cana­dian stock list­ing that al­lows it to raise funds to grow and sell pot in the legally murky U.S. mar­ket, likely open­ing the door for an in­flux of oth­ers.

Fri­day Night Inc. made its pub­lic trad­ing de­but Fri­day on the Cana­dian Se­cu­ri­ties Ex­change (CSE) and saw its shares spike 467 per cent to close its first day with a mar­ket value of $44.2 mil­lion, sug­gest­ing there is sig­nif­i­cant in­vestor in­ter­est in com­pa­nies with U.S. state li­cences to cul­ti­vate cannabis.

U.S. mar­i­juana com­pa­nies are for­bid­den to list on pub­lic stock ex­changes in their home coun­try be­cause the drug is con­sid­ered a Sched­ule I nar­cotic at the fed­eral level.

The Obama ad­min­is­tra­tion made it clear it would not step in to pros­e­cute op­er­a­tors in states where the drug is le­gal, but sig­nals from the Trump ad­min­is­tra­tion have been harder to read.

That murk­i­ness is caus­ing headaches for Cana­dian reg­u­la­tors, the coun­try’s ma­jor stock ex­change and com­pa­nies that want to in­vest in U.S. op­er­a­tions.

Van­cou­ver-head­quar­tered Fri­day Night is the first pure-U.S. play pub­licly listed in Canada that is grow­ing the plant in the U.S. for both med­i­cal and recre­ational use.

“The com­pany’s ob­jec­tive is to cap­i­tal­ize on the op­por­tu­ni­ties pre­sented as a re­sult of the chang­ing reg­u­la­tory en­vi­ron­ment gov­ern­ing the THC and mar­i­juana in­dus­try in the United States,” the com­pany said in a June 12 fil­ing.

Cana­dian mar­i­juana com­pa­nies have so far tip­toed around the lack of clear cut poli­cies from reg­u­la­tors and the op­er­a­tor of Canada’s largest stock ex­change by stick­ing to the U.S. med­i­cal mar­ket or an­cil­lary busi­nesses that don’t “touch the plant” and list­ing their U.S. investments on the less risk-averse CSE.

Even on that smaller ex­change, Cana­dian com­pa­nies that have U.S. investments, such as Nu­tri­tional High In­ter­na­tional Inc., Cana­dian Bio­ceu­ti­cal Corp. and Golden Leaf Hold­ings have tried to skate around con­flict­ing U.S. laws by fo­cus­ing pro­duc­tion on oil ex­tracts and ed­i­bles, or through in­di­rect investments in sub­sidiaries or by ac­quir­ing real es­tate and other an­cil­lary busi­nesses.

Richard Car­leton, the CSE’s chief ex­ec­u­tive, said Fri­day Night’s move will likely be fol­lowed by a num­ber of U.S. mar­i­juana pro­duc­ers that have ap­proached the ex­change about po­ten­tial listings as they eye the huge amounts of cap­i­tal their Cana­dian peers have raised.

Se­cu­ri­ties reg­u­la­tors in On­tario and Bri­tish Columbia have re­viewed and ap­proved prospec­tuses of com­pa­nies with in­ter­ests in the U.S. le­gal cannabis space, he added.

The CSE has ben­e­fit­ted from the TMX’s un­of­fi­cial hands-off stance when it comes to pot com­pa­nies with ex­po­sure to the U.S.

“Com­pa­nies since the early days of this in­dus­try have seen the TSX deeply am­biva­lent about the space,” he said.

Cana­dian Bio­ceu­ti­cal CEO Scott Boyes said he was told by the TMX Group the com­pany could not com­plete a U.S. ac­qui­si­tion as long as it was listed on the TSX Ven­ture Ex­change even though the deal was struc­tured such that its in­vest­ment in Ari­zona’s med­i­cal mar­ket meant the com­pany was not cul­ti­vat­ing or sell­ing cannabis.

“We had no choice, so we had to switch to the CSE,” he said of the com­pany’s Jan­uary move.

“Un­til such time as the TMX group changes their pol­icy and makes it a lit­tle more open we’ll stay with the CSE.”

The CSE be­lieves that as long as an is­suer com­plies with laws in the state in which it op­er­ates and ad­e­quately dis­closes the le­gal risks it faces, the com­pany meets the ex­change’s list­ing stan­dards.

Mean­while, many Cana­dian com­pa­nies say they have been speak­ing with Canada’s largest ex­change op­er­a­tor about its ap­proach and ex­pect it to come out with a writ­ten pol­icy guid­ance.

The TMX Group would not com­ment on whether such a mar­i­juana pol­icy is forth­com­ing, say­ing only that each list­ing is re­viewed on a “case-by-case” ba­sis.

“We eval­u­ate all is­suers and their el­i­gi­bil­ity to list, and to re­main listed on our mar­kets, ac­cord­ing to our pub­lished poli­cies and guid­ance,” a spokes­woman emailed.

But the prob­lem for many mar­i­juana is­suers is there doesn’t seem to be con­sis­tency and they don’t know how such poli­cies and guid­ance ap­ply to the nascent in­dus­try.

The On­tario Se­cu­ri­ties Com­mis­sion said it is co­or­di­nat­ing dis­cus­sions with pro­vin­cial se­cu­ri­ties reg­u­la­tors across the coun­try and also talk­ing to the stock ex­changes.

The TMX is feel­ing pres­sure to write a clearer pol­icy on U.S. investments be­cause it has seen a num­ber of Cana­dian com­pa­nies make investments in the U.S. even as it has pre­vented U.S. com­pa­nies from list­ing, said Ch­eryl Re­icin, an at­tor­ney at To­rys LLP.

“They re­ally need to fig­ure that out be­cause it’s now blur­ring.”

Sev­eral com­pa­nies also said they sense a shift to­ward more lib­eral poli­cies could be forth­com­ing at the TMX af­ter it al­lowed one of Canada’s largest mar­i­juana pro­duc­ers, Aphria Inc., to in­vest in a Florida-based med­i­cal mar­i­juana com­pany through a CSE-listed sub­sidiary.

Aphria CEO Vic Neufeld said he be­lieves there are on­go­ing in­ter­nal TSX dis­cus­sions about de­vel­op­ing a for­mal pol­icy on U.S. in­vest­ment, but there has so far been noth­ing of sub­stance. “This is an is­sue they need to con­clude on,” Neufeld said.

Steve Hawkins, pres­i­dent at Hori­zons ETFs, said he ap­proached the TMX be­fore launch­ing the coun­try’s first mar­i­juana ex­change traded fund in March and was told the ex­change had a “hard rule” that it would not list any se­cu­ri­ties car­ry­ing on “il­le­gal op­er­a­tions” in the U.S.

“But the Aphria of­fer­ing was a pretty strong cat­a­lyst for us to re­open dis­cus­sions with the reg­u­la­tors and the TMX,” he said.

Hawkins said as a re­sult of that “mi­nor shift “in TMX poli­cies, the ETF will open its port­fo­lio to in­clude com­pa­nies that de­rive rev­enue from the med­i­cal and recre­ational in­dus­try in the U.S.

“There can’t be a dou­ble stan­dard out there.”

CHRISTO­PHER FUR­LONG/GETTY IM­AGES

The stel­lar de­but of Fri­day Night on the Cana­dian Se­cu­ri­ties Ex­change sug­gests sig­nif­i­cant in­vestor in­ter­est in pot firms with U.S. state li­cences.

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