Canadian marijuana firms with U.S. operations warned of delisting
An alliance of Canadian securities regulators said Monday that it expects domestic companies with marijuana dealings in the United States to give their investors a good idea of the potential risks of doing drug business south of the border, which could now include the possibility of being delisted from the Toronto Stock Exchange.
“We expect issuers with marijuana-related activities in the U.S. to address the current legal and regulatory environment in their disclosures, including any risks that result from changes in the approach to enforcement of U.S. federal law,” Louis Morisset, chair of the Canadian Securities Administrators, said in a news release.
Cannabis sales are legal in some states, but illegal at the federal level in the U.S. Furthermore, the Toronto Stock Exchange, Canada’s biggest, warned Monday that issuers conducting business in violation of U.S. federal laws around cannabis are not in compliance with the exchange’s own requirements.
Those not complying with the requirements could face a delisting review, the TSX said.
The TMX Group Ltd., owner of the Toronto Stock Exchange and the Canadian Depository for Securities, a clearing house that processes trades, said in August it had been in talks with the CSA about the thorny subject of Canadian issuers with marijuana-related operations in the U.S., calling it “a complex matter which touches multiple aspects across our capital market system.”
The notice for Canadian issuers with marijuana interests in the U.S. outlines the expectations for disclosure, including a description of any U.S.-based operations.
“They’ll also be required to provide disclosure in terms of what happens if the legal framework
changes,” Richard Carleton, chief executive of the smaller Canadian Securities Exchange, said Monday. “So, if the U.S. federal government decides to make life difficult for companies operating legally at the state level, what would the impact on the company’s business be.”
The CSA said its disclosure expectations apply to all issuers with U.S. marijuana-related activities, “including those with direct and indirect involvement in the cultivation and distribution of marijuana, as well as issuers that provide goods and services to third parties involved in the U.S. marijuana industry.”
Even if a listed company has only indirect involvement with production or distribution, they must still explain what the rules are around cannabis in the state or states they aim to operate in.
Unlike Canada, the U.S. federal government currently has no plan to legalize recreational cannabis. Nevertheless, several states have still legalized or intend to legalize medical and recreational marijuana.