Cannabis firms with U.S. exposure get watchdog’s OK

SECURITIES Disclosure rules tightened, but no de-listing

Canadian cannabis companies with operations in the U. S. are breathing a sigh of relief, after Canadian securities regulators decided on Thursday not to take dramatic action against companies with risky assets south of the border.

The cannabis industry has been in limbo since Jan. 12 when the Canadian Securities Administrators released a note saying they were reviewing their policy about cannabis companies listed on Canadian exchanges that had exposure to the U.S. This came a week after U. S. Attorney General Jeff Sessions repealed the Barack Obamaera Cole Memorandum, that limited federal enforcement of U.S. cannabis laws.

The uncertainty left companies with U. S. operations fearing that they could be de- listed from Canadian exchanges.

On Thursday t he CSA released new guidance on the issue, which expanded the amount of disclosure U. S.- exposed cannabis companies need to give, but left everything else largely unchanged.

“We’ve got deals that are back on after 2 ½ weeks. Everybody has been sitting on the sidelines, and now it’s go, go, go again,” said Eric Foster, a partner at Dentons Canada LLP, who leads the law firm’s cannabis group.

“Effectively what it say is it’s business as usual ... They’ve said these are companies that are allowed to list in Canada, individual exchanges can make their own decisions as to whether to list these entities. Really it just increased the disclosure,” he added.

Companies will be required to disclose more information about potential risks related to their own U. S. operations and those of third- party partners. The CSA warned that companies that don’t comply with the enhanced disclosure rules could face punishment.

“We view this development positively for Can- adian-listed companies with U. S. operations, as it significantly reduces their risk profile, and may be the spark investors need to take advantage of attractive valuation opportunities,” wrote Russell Stanley, an analyst with Echelon Wealth Partners, in a note to clients.

“Today’s ruling is really j ust a reconfirmation of their earlier view,” said Marc Lustig, chief executive of Ottawa- based CannaRoyalty Corp., which operates in California, Washington and Arizona.

“It’s extremely positive not just for Canadian companies like CannaRoyalty that have U. S. assets, but it’s quite positive for the Cannabis sector as a whole.”

The lack of clarity around the CSA’s position meant CannaRoyalty, which focuses on research, cannabis devices and intellectual property, had to put a number of potential partnerships with Canadian producers on hold.

“The fact that we’re commercializing our IP in the U.S. ... left Canadian licensed producers reluc t ant (to talk) until there was clarity that they weren’t tainting the water, so to speak,” said Lustig.

In the hours after the CSA released its decision on Thursday afternoon, Lustig said he had a number of discussions with Canadian LPs about potential deals that had been put on hold.