TMX Group Ltd. is seeking guidance from Canadian securities regulators as it weighs how to deal with marijuana companies listed in Canada with interests in the United States where the business remains federally illegal.
"This is a complex matter which touches multiple aspects across our capital market system, and as such requires close examination and careful consideration," Toronto-based TMX Group said in a release Thursday. "We are working with regulators to arrive at a solution that will clarify this matter for issuers, investors, participants and the public."
The move seeks to draw a line under policy uncertainty for investors and companies that pits more liberal rules around cannabis cultivation and distribution in Canada against a Trump administration that has taken a harder line.
While TMX has largely shied away from listing marijuana-related companies with U.S. investments or operations on its own Toronto Stock Exchange (TSX) and other venues, it processes all Canadian equity trades via its clearing house, the Canadian Depository for Securities Ltd. (CDS).
That means dealing with a string of marijuana companies that have swarmed to the smaller Canadian Securities Exchange (CSE) to raise funds, often to fund U.S. opportunities.
TSX-listed producer Aphria Inc. also has investments in Arizona and Florida, where medical marijuana is legal. The company was not immediately available to comment.
The head of Canopy Growth Corp., which trades on the TSX, wants TMX to make a decision.
"I've heard since March that they're working vigorously on this. So you can imagine I'm finding it less exciting to read that headline," Canopy Growth CEO Bruce Linton told CBC News.
Linton said the issue affects his company even though it doesn't have U.S. investments because it affects Canopy Growth's ability to secure investments from American institutional investors.
"They won't invest in Canada in cannabis until the rules are clear and applied," he said.
CSE chief executive Richard Carleton, who also sits on the board of the CDS, said regulators have allowed Aphria and such stocks to list with adequate disclosure and that he is actively exploring alternatives in case TMX decides to stop clearing their trades.
"We view it as a matter of risk disclosure for the issuers and their prospective investors and not as an institutional risk to our exchange," he said, pointing out that the Ontario Securities Commission recently approved the prospectus of CannTrust, a company with operations in both countries due to list on the CSE on Monday.
Money has poured into Canada-listed stocks recently, in contrast to the tough financing environment for U.S. marijuana companies operating in states that have made cannabis legal.
A more liberal regulatory framework in Canada has led to an explosion in publicly traded marijuana companies, serving the existing medical market and preparing for the countrywide legalization of cannabis for recreational use, expected by mid-2018. Consultants estimate the size of the Canadian marijuana market could range from $5 billion to $10 billion.
However, a tougher line in Canadian capital markets could cut that flow significantly and would essentially close off the opportunity for expansion into larger markets in U.S. states where marijuana is legal.
TMX said Thursday, "We will communicate more on this as soon as we can. In the meantime, we want to clarify to the marketplace that there is no CDS ban on the clearing of securities of issuers with marijuana-related activities in the U.S., despite media reports."