TMX rules on U.S.-exposed cannabis listings hurting industry, say insiders
The Toronto Stock Exchange’s unwillingness to list cannabis companies with exposure to the United States is hindering the development of the Canadian marijuana industry, insiders say.
TMX Group Ltd., which owns the Toronto Stock Exchange and the TSX Venture Exchange, reiterated this week that cannabis companies listed on its exchanges are not allowed to operate in the United States due to concerns about the legality of the drug.
That’s despite a green light given by the Canadian Securities Administrators last week, who increased disclosure requirements but left it up to individual exchanges to decide whether or not to list U.S.-exposed cannabis companies.
“Not being able to participate in the U.S. cannabis market for TSX-V and TSX listed issuers is a disadvantage, and really kind of hinders of the growth of our market and also erodes our leadership position on a global basis,” Hugo Alves, chief executive of TSX Venture-listed Cannabis Wheaton Income Corp., told a meeting of the Canadian Club of Toronto on Monday.
Canadian capital markets have become a linchpin in the global cannabis industry, and the country’s large and well-capitalized public companies are quickly expanding into medical marijuana markets around the world. Because most of them are listed on the TSX or TSX Venture, however, they’re effectively stopped at the southern border.
Even though many U.S. states have developed medical and recreational markets, cannabis remains federally illegal, and the U.S. Department of Justice recently rescinded an order limiting federal enforcement of cannabis laws. “From our perspective, at the intersection of federal law and state law in this matter in the U.S., federal law has jurisdiction,” TMX spokesperson Shane Quinn said.
Despite the risks, not being able to operate in the United States means foregoing significant opportunities, said George Scorsis, chief executive of Liberty Health Sciences Inc., who sat on the Canadian Club panel with Alves, Tilray CEO Brendan Kennedy and Beacon Securities Ltd. analyst Vahan Ajamian.
“We’re seeing 29 states that currently have medical programs in place. Over the next year we’re going to see another nine bills that are going to be passed. That’s a fundamental shift in the behaviour, the ideology, the beliefs of the average American,” he said.
Liberty Health, which is developing operations in Florida and Arizona, is listed on the Canadian Securities Exchange (CSE), which allows U.S.-exposed cannabis companies. However, major shareholder, Aphria Inc. — one of Canada’s largest licensed producers — is in the process of divesting from Liberty Health, in order to bring itself in line with TMX rules.
“Canadian companies have a huge advantage from a technical and capital and balance sheet perspective right now, thank God they’re not competing against me,” Hadley Ford, chief executive of iAnthus Capital Holdings, said in an interview. His company, which is based in New York but listed on the CSE, recently secured cannabis sales licenses in New York and Florida.
“Any time (U.S. Attorney General Jeff ) Sessions rattles the sword, people run under the bed and money dries up, and we’re the only call. And if we’re the only call, guess what just happened to the price?” Ford said.
“If this was a regular industry, there is no way we’d be able to buy one of ten licenses in New York, with a population of 20 million, to sell cannabis, for $18 million. That thing would be worth a billion dollars.“
The reluctance of the TMX is nonetheless opening up opportunities for smaller exchanges. Both the CSE and the Aequitas NEO Exchange have seen significant growth thanks to listings of cannabis companies with U.S. operations.
In 2017, the CSE saw the total value of trades rise 400 per cent. “The U.S. guys were certainly a material contributor to the growth that we had,” CSE chief executive Richard Carleton said.
The CSE now has 22 cannabis companies with U.S. exposure, including CannTrust Holdings, which briefly exceeded $1 billion in market cap several weeks ago, the first CSE-listed company to do so.
Ajamian, the Beacon Securities analyst, said he’s starting to see a number of institutional investors who were early players in the cannabis market trim their pure Canadian holdings and move into companies with U.S. interests.