Pubdate: Tue, 17 Oct 2017
Source: Globe and Mail (Canada)
Copyright: 2017 The Globe and Mail Company
Author: Christina Pellegrin
Page: A1


Canada's largest stock exchange operator is threatening to delist
marijuana companies that are operating in violation of federal drug
laws in the United States.

TMX Group Ltd. said late on Monday in a staff notice, a document that
clarifies existing policy, that it is launching a review of cannabis
firms listed on its markets to determine if any are doing business in
the United States, where several states have either legalized or
decriminalized marijuana. However, U.S. federal law still prohibits
the drug.

With the move, any such firms could be delisted from the Toronto Stock
Exchange or the TSX Venture Exchange, the two main stock markets in
Canada - forcing them to find another stock exchange and creating
uncertainty for investors, as well as others in Canada's burgeoning
marijuana industry.

"If you're violating federal law, you're out," said Ungad Chadda, the
president of capital formation for equities at TMX.

Separately on Monday, the group representing Canadian securities
regulators spelled out how firms from any industry will have to
disclose their ties to the U.S. marijuana market.

The announcements come after Globe and Mail reports on the discrepancy
in how listing requirements for TMX's exchanges were being applied to
cannabis companies that already had a listing versus those seeking

At the heart of the staff notice issued on Monday by TMX is a
declaration that U.S. federal law takes precedence over the laws
passed by states that allow marijuana to grown and sold.

"The staff notice is very clear that we are of the view that federal
law is the jurisdiction that matters," Mr. Chadda told reporters. "Our
view is, clearly, that the federal law applies here, meaning that
there may be some issuers on our markets that are not in compliance
with the requirements."

Issuers whose listings on the TSXV or TSX will be subject to a more
thorough review will be identified and contacted before the end of

TMX will assess those that cultivate, distribute or possess the drug
directly, as well as those that sell goods or services to the sector.

The sector has grown as Canada and several states south of the border
have eased restrictions on the drug, spurring investor interest and

Dozens of companies have gone public on the TSX, TSV and on the
lesser-known but fledgling Canadian Securities Exchange.

But the TSX and TSXV have clarified in their notices that "issuers
with ongoing business activities that violate U.S. federal law
regarding marijuana are not complying with the requirements" outlined
in the two exchanges' listings manuals. While the tension between U.S.
federal and state laws has long existed, the former Obama
administration said in 2013 that the federal government would not
interfere with marijuana businesses in states that have legalized or
decriminalized the drug, as long as those businesses would abide by a
series of guidelines. The document that outlines the policy is known
as the Cole Memorandum.

However, "such guidance does not have the force of law and can be
revoked or amended at any time," both exchanges say in their notices.
It is far from certain whether U.S. President Donald Trump's
administration will abide by the policy.

"The Cole Memorandum was under the Obama administration," Lou
Eccleston, chief executive of the TMX, said in an interview in August.
"There's a very different administration now in place, and it creates
uncertainty around where it's going to go."

The Canadian securities regulator's guidelines released on Monday
detail the legal risks that must be disclosed to investors for
companies doing business in the U.S. cannabis sector. The Canadian
Securities Administrators (CSA), which represents the 13 provincial
and territorial securities regulators, said cannabis companies will
have to clearly disclose their U.S. involvement, and make clear to
investors that the United States could become more aggressive about
its enforcement of federal laws.

These firms must also make clear what financing options they do and do
not have access to for their operations, the CSA said.

"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, the
chair of the CSA, who is also the chief executive officer of the
Autorite des marches financiers, said in a statement.

The move is expected to offer some clarity to the dozens of
marijuana-focused businesses that have turned to the Canadian public
markets for capital. While the legal uncertainties of the U.S. market
have created some opportunities for better-capitalized Canadian firms
to build their companies, some have expressed confusion about the
consistency of stock exchange rules and guidelines on U.S.

"This is something the industry was hoping to get, now they got it and
we can get back to work," said Richard Carleton, the CEO of CNSX
Markets Inc., which operates the CSE.

Mr. Carleton added that prospective issuers have been looking for
guidance on what they should disclose to investors in the most recent
prospectus that has been approved.

"There was no such thing as clarity," he said. "People were reading
the tea leaves."

In recent months, the CSE and TMX have taken different approaches to
the listings of cannabis firms that generate revenue in the U.S. market.

The CSE has been welcoming them, as long as they provide disclosure
around the legal risks they face. On the other hand, the TMX-owned
equities exchanges have been turning them away, helping the CSE emerge
as a hotbed for marijuana stocks.

The CSA's latest notice set out some specific requirements for issuers
with direct involvement in growing or distributing marijuana in the
United States, as well as those with indirect participation. It also
stated that any action taken by the U.S. federal government to alter
its approach to enforcement regarding marijuana could result in a
re-examination of the group's views.

- - With a report from Jacqueline Nelson
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