Friendlier laws on medical marijuana use in Canada are already drawing American investment north or the border, and the trend is likely to further ignite if the federal Liberals make good on their promise to allow recreational use of the drug.
Poseidon Asset Management, a San Francisco-based hedge fund focused squarely on the cannabis space, says it is considering boosting its Canadian holdings following Justin Trudeau's election win.
You're going to see a lot of U.S. marijuana companies listing on the Canadian exchanges up here
- Analyst Khurram Malik
"We have one core holding up there currently but we would love to expand that," says Morgan Paxhia, the hedge fund's founding partner and chief investor.
South of the border, Poseidon invests only in businesses that are "one step away from touching the leaf," such as producers of cooling systems used in marijuana production facilities or vaporizer technology.
That's because despite the fact that a number of states — including Oregon, Colorado and Washington — have legalized the recreational use of marijuana, U.S. federal laws that prohibit the drug leave cannabis producers operating in a legal grey zone.
"We wouldn't want to put our (investors) at risk with that exposure in the United States," says Paxhia. "That's why Canada is of interest to us, because we can then participate in that growth."
Big money waiting for guidance
Experts say American institutional investors looking for cannabis plays are heading north, where medical access to the drug is legal countrywide, to avoid running afoul of U.S. federal laws or sinking their money into companies that could be shut down by U.S. federal authorities.
"That's a theme we've been seeing for a long time — foreign investors investing in Canadian companies, to the point that most of the capital raised now for Canadian companies comes from overseas," says Khurram Malik, a Jacob Securities analyst who tracks the medical cannabis space.
Trudeau's election win could accelerate that trend further says Alan Brochstein, the founder of 420 Investor and communications and marketing firm New Cannabis Ventures.
"Canada really has a chance to be a global leader here," says Brochstein.
Some companies that operate in the U.S. have even started listing their shares on Canadian markets in the hopes of capturing more investment dollars.
"That's part of the rationale of listing in Toronto, because we can attract U.S. investment in Toronto," says Don Robinson, CEO of Golden Leaf Holdings, a cannabis extracts producer currently operating in Oregon.
Golden Leaf, which has plans to expand across North America, listed its shares on the alternative Canadian Securities Exchange on Oct. 14. under the symbol GLH.
Nutritional High International Inc., a company that sells marijuana edibles to recreational users in the U.S., has been trading on the Canadian Securities Exchange since March, even though edible cannabis products are not currently legal north of the border.
"You're going to see a lot of U.S. marijuana companies listing on the Canadian exchanges up here," says Malik, noting that Canada has a high number of legitimate cannabis companies trading on its stock markets relative to other countries.
"If you go to the OTC pink sheets in the U.S. there's probably over 100 names, but a lot of those are pretty sketchy," says Malik. "So (cannabis companies) are looking for a market where their legitimate peers are trading and that happens to be Canada."
However, Braden Perry, a lawyer who specializes in government compliance, says even investing in Canadian cannabis firms could spell trouble for American funds.
"If you have U.S. money invested in a product that is illegal in the United States, repatriating that money could be considered a money laundering violation," said Perry, a partner in Kansas City-based law firm Kennyhertz Perry, LLC.
However, Perry adds that the issue is a complicated one.
"I don't want to be accusing people of breaking the law when I don't know exactly what they're doing."