Pot stocks suffer sector-wide sell-off
TSX warning about U.S. federal violation sparks run amid delisting talk
TORONTO — Licensed marijuana producer stocks fell as much as 15 per cent Tuesday in a sector-wide sell-off a day after the Toronto Stock Exchange said firms with cannabis-related business activities that violate U.S. federal law could face delisting.
Among companies whose shares fell were Aphria Inc., which on Tuesday announced a bought-deal financing agreement to raise $80 million by issuing more than 11 million shares,
Canopy Growth fell eight per cent, Emblem Cannabis 15 per cent and Maple Leaf Green World Inc. 10 per cent.
On Monday, the TSX issued a staff notice that said U.S. federal law takes precedence over state laws, and issuers that violate the federal marijuana law are not complying with listing requirements.
Aphria said the TSX notice was “extremely broad” and that it was difficult to determine what, if any, impact it could have on its business.
“The objective application of such staff notice by the TSX to any entity engaging in activities related to the cultivation, distribution or possession of marijuana in the U.S. or entities engaging in ancillary services activities may prove to be challenging in determining actual compliance with such guidance,” the company said Tuesday.
But it noted that marijuana is medically legal in 31 states and territories and that the U.S. Congress has prohibited the U.S. Department of Justice from using federal funds to carry out criminal or civil actions against state licensed medical cannabis operators.
The TSX clarification had been anticipated by marijuana companies looking to get a foothold in the U.S. market, as well as U.S. companies that want to access capital on Canadian markets.
Aphria, which is listed on the TSX, announced an investment in Florida in April of this year. The company said its common shares have traded on the TSX and previously the TSX Venture Exchange for almost three years, during which time it has raised over $216 million. The company added that it has had marijuana-related activities in the U.S. since 2015.
Meanwhile, Canopy said that the TSX staff notice would have no impact on its operations and praised the move, calling it a step in the right direction.
“We take our responsibility to our shareholders seriously and as such have chosen to conduct business in jurisdictions where it is federally legal to do so,” Canopy chair and chief executive Bruce Linton said.
The Canadian Securities Administrators, the umbrella organization for Canada’s provincial and territorial securities regulators, appeared to take a much more lax approach, putting out a notice late Monday outlining its expectations for marijuana-based companies with U.S. exposure. It said companies must tell investors about risks when they invest south of the border — where issuers with marijuana-related activities in the U.S. assume certain risks due to conflicting state and federal laws.
Linton said it was “incomprehensible” that a private business — like TMX, which operates the TSX and the Venture Exchange — is “acting as the regulator.” He said the CSA’s stance that companies can violate U.S. federal laws regarding marijuana provided that they simply disclose it is “completely ludicrous and no person in Canada would think that’s practical or logical.”