Regulators set rules for crossborder pot listings opens flood gates

TORONTO — The Canadian Securities Administrators have set out “disclosure expectations” for marijuana industry firms with investments in the U.S., offering much-anticipated clarity for companies that operate on both sides of the border.The umbrella organization for Canada’s provincial and territorial securities regulators put out a staff notice Monday, saying that cannabis companies must tell investors about certain risks when they invest south of the border — where issuers with marijuana-related activities in the U.S. assume certain risks due to conflicting state and federal laws.“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,” said CSA chair Louis Morisset in a released statement.While some states have authorized the use and sale of marijuana, it remains illegal under federal law. The federal law relating to marijuana could be enforced at any time, and this would put issuers with U.S. marijuana-related activities at risk of being prosecuted and having their assets seized.More than two dozen states have legalized medical marijuana, including eight states where marijuana is legal for recreational use.The CSA’s move provides much-needed clarity for the cannabis industry, which has operated under an unwritten rule that companies which trade on the Toronto Stock Exchange or the TSX Venture Exchange must not invest in the U.S. cannabis sector.Canadian marijuana companies had largely handled the hazy legality by focusing on markets outside the U.S., or by listing on the smaller and less risk-averse Canadian Securities Exchange.But after Canadian marijuana producer Aphria, which is listed on the TSX, announced an investment in Florida in April of this year, questions about the official policy mounted and regulators took notice.The CSE has been more permissive than the TSX, requiring that companies provide risk disclosure for investors. Currently, about half the trading activity on the CSE is involved marijuana-based businesses, said its chief executive Richard Carleton. Of the roughly 50 marijuana-based companies listed on the CSE, about a dozen have U.S. holdings, he added.Carleton called the CSA’s move an “extremely positive step.”“This is exactly what the industry has been looking for, and I think it will spur more companies involved in the U.S. cannabis space to look to Canada for growth capital,” he said.The CSA’s disclosure expectations apply to all issuers with U.S. marijuana-related activities, including those with direct and indirect involvement in the cultivation and distribution of marijuana, as well as issuers that provide goods and services to third parties involved in the U.S. marijuana industry. Issuers are expected to provide these disclosures in prospectus filings and other required documents, such as their Annual Information Form and Management’s Discussion and Analysis.

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