TMX Wants to Restrict Canadian Cannabis Businesses From Entering the US Markets

A staff notice sent out on Monday (October 16) from the Toronto Stock Exchange made its plans known to deter Canadian cannabis businesses from continuing business activities in the US, given the uncertainty of the legality of marijuana.
As it looks to increase the restrictions on cannabis stocks already operating or associated directly with interests in the US, Reuters reports, the exchange is consider delisting some of these stocks. The article continued, stating that Ungad Chadda, TMX’s head of capital formation for equity markets, said some of the issuers in the exchange “are not in compliance” with the TSX’s requirements.
One of the largest licensed producers (LPs) of medical cannabis in Canada, Aphria (TSX:APH), has significant interest in the US.  Earlier this year, the company established a heavy partnership with Liberty Health Sciences (CSE:LHS), a US-based company that focuses on acquiring license-ready medical cannabis operations. Its primary  focus is in Florida.

Impact to Aphria and its business

Aphria’s took a direct hit to its stock on Tuesday (October 17), dropping 13.38 percent. The story wasn’t much better on Wednesday as its share price experienced a 1.74 percent decline to close the trading day at $6.74
In a statement issued by Aphria on Tuesday, Vic Neufeld, chief executive officer called the staff notice “extremely broad,” and said it would be difficult to determine the impact it would have on the company’s business.
“[W]e believe the TSX’s recent staff guidance… does not properly apportion the weight and context that must be applied to the current split between U.S. Federal and state laws,” Neufeld said in a statement.
In an interview with Business News Network, Neufeld questioned the rationale of the decision and what the company intends to do next.
“The train has left the station in many, many, many states and eventually the feds will, in our opinion, integrate both properly for medical purposes,” Neufeld said. He added Aphria plans to present its case and hold a dialogue with “the powers to be.”
Neufeld emphasize his company has been straightforward regarding its use of earnings capital to acquire its US options, instead of raising money through a financial institution in Canada and then using that money in the states. Neufeld said the TSX announcement completely blindsided his company.

Second largest exchange responds

As a counter to the larger exchange, the Canadian Securities Exchange also issued a notice welcoming cannabis businesses with US activity. Richard Carleton, chief executive officer of the CSE told the Investing News Network (INN) the exchange wanted disclosure and transparency from cannabis companies with US aspirations as to the risk involved in their plans.
Louis Morisset, chair of the Canadian Securities Administrators (CSA) said in a statement, they expect issuers with US activity to address all the legal and regulatory environments they face in their disclosures.
“[I]ncluding any risks that result from changes in the approach to enforcement of US federal law,” Morisset added.

State of the US cannabis market

Several states have legalized the use of medical cannabis and have even allowed the sale of the recreational product. However, on a federal level, the drug is still illegal and makes any business related to it complicit. Attorney General Jeff Sessions has been vocal on his stance against the drug and any business operation related to it.
Sessions has asked Congress, in writing, for support in stopping down the expansion of the industry.
I believe it would be unwise for Congress to restrict the discretion of the [Justice] Department to fund particular prosecutions,” Sessions wrote. “The [Justice] Department must be in a position to use all laws available to combat the transnational drug organizations and dangerous drug traffickers who threaten American lives.

Different type of response from other LPs

Some companies welcomed the announcement by the TSX. Canopy Growth (TSX:WEED) released a statement “applauding” the decision by the exchange. Canopy has been vocal in its position against operating in the US in any significant way as a violation of the TSX listing obligations.
“[Canopy] commends the decisive action taken today and encourages other regulatory bodies to follow the self-regulatory step taken by the TSX,” the company wrote.
Bruce Linton, chief executive officer for Canopy said the notice was a step in the right direction and called it a good day for the cannabis sector.
“[T]his will ensure our sector can operate with the credibility and professionalism institutional investors expect of companies listed in Canada.”
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.