Day 6

Weed the North: Why American pot companies are listing on a Canadian stock exchange

U.S. pot companies face federal restrictions at home, so they're coming north to go public. Some are dubbing the Canadian Securities Exchange as the 'Canadian Cannabis Exchange.'

'It's like the Wild West was during the gold rush'

American marijuana companies are flocking north to do business ahead of pot's legalization this summer. (Evan Mitsui/CBC)

On the eve of marijuana's leap into the recreational market in Canada, American companies are heading north in droves to get in on the action.  

Corporate lawyer Debbie Weinstein says U.S. pot companies facing federal restrictions at home are looking north to go public and do business. (Submitted by Debbie Weinstein)
"It is like the Wild West was in the early gold rush," says Debbie Weinstein, founding partner at LaBarge Weinstein LLP, a business law firm in Ottawa.

"We're seeing money roll in, we're seeing businesses roll in."

This week, American pot giant MedMen Enterprises Inc. listed on the Canadian Securities Exchange with a valuation of over $2 billion.

"We most definitely will have an operational presence in Canada," Adam Bierman, CEO of MedMen, told CFN Media Group.

"It makes sense. It's easy to scale North America," said Bierman.

MedMen has shops in California, Nevada and New York, and it employs more than 800 people, but the company can't be listed on the New York Stock Exchange because federally, pot is still illegal in U.S.

We're going to see jurisdictions and industry from all over the world outside of the U.S. come to Canada.- Debbie Weinstein

Weinstein says MedMen's listing on a Canadian stock exchange is only the beginning of a northward move by American cannabis companies who want to go public.

Despite marijuana being legal in a few U.S. states, the federal government still considers it a controlled substance the same way it does cocaine and heroin, Weinstein says.

"That is sending a lot of American business owners and entrepreneurs north of the border," Weinstein tells Day 6 host Brent Bambury.

Canadian securities regulators do not ban stock exchanges here from listing American marijuana companies with U.S. operations.

MedMen CEO and Founder Adam Bierman said his company will launch operations in Canada after the American marijuana giant listed on the Canadian Securities Exchange on May 29. (Lucy Nicholson/Reuters)

They do, however, deem it a risk for investors to purchase shares in these companies due to pot's standing under U.S. federal laws, Weinstein says.

The Toronto Stock Exchange (TSX), the storied blue chip exchange, made a policy decision not to list U.S. marijuana companies with operations in their country, she adds.

"The Toronto Stock Exchange said: 'We see that as a risk to Canadian investors and we will not list companies on either of our exchanges that have U.S.-exposed cannabis business.'"

The Canadian Securities Exchange (CSE), a junior board compared to the TSX, was happy to list these companies.

"The CSE, being the new kid on the block, and capitalism being what it is, said: 'No problem. We're going to allow cannabis-related U.S. entities to list if they can find investors in Canada,'" Weinstein says.

"And boy have they ever."

The Toronto Stock Exchange and the Venture Exchange do not list marijuana companies with operations in the U.S. (Getty Images)

Potential risks

The NYSE and TSX would list marijuana companies as long as they have no operations in the U.S.

Canopy Growth Corporation began trading on the NYSE on May 24 after arguing that it is not breaching any U.S. laws because all of its operations are outside of the country.

In January, U.S. Attorney General Jeff Sessions rescinded an Obama-era directive that eased enforcement of federal marijuana laws in states that have legalized the drug.

That has likely put the blue chip boards on edge, Weinstein says.

"They're not willing to move to the next step of exposing their own entities to Jeff Sessions' and Donald Trump's potential change of heart," she adds.

The TSX and its own junior board, the Venture Exchange, are still getting record listings because of the burgeoning medical marijuana market in Canada.

"Most of those companies have raised hundreds of millions of dollars on the Toronto Stock Exchange, either the big board or the junior," Weinstein says.

In addition to American marijuana growers, companies making vapes, lights and iPhone apps for pot consumers are also coming to Canada to do business. (Martina Paraninfi/Getty Images)

But she adds they'll still miss out on the plethora of U.S. companies who are developing ancillary products for the recreational market, including vapes and iPhone apps.

"So they are definitely leaving money on the table."

According to Weinstein, not only are American companies coming north to go public, they're also moving their operations here.

"We're going to see that," she says.

"We're going to see jurisdictions and industry from all over the world outside of the U.S. come to Canada."

To hear the full interview with Debbie Weinstein, download our podcast or click the 'Listen' button at the top of this page.