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Canada pot firm blazes ahead in U.S. as exchange debates policy

Aphria’s marijuana plants intended for medical use grow in their greenhouse in Leamington, Ont., in 2014.

GEOFF ROBINS/The Globe and Mail

A Canadian marijuana producer is forging ahead with a U.S. expansion, despite being caught in the cross hairs of a regulatory review weighing the validity of company investments south of the border where the drug is illegal federally.

Aphria Inc. has applied for a license to cultivate medical marijuana in Ohio and also plans to apply to process and distribute the drug in the Midwestern state, said Chief Executive Officer Vic Neufeld. The Leamington, Ontario-based company has been fully transparent with the Toronto Stock Exchange and securities regulators regarding its U.S. expansion plans and every step it is making is in compliance with Canadian and U.S. state laws, he said.

"We're continuing to do what we're doing in the U.S.," Mr. Neufeld said by phone.

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The company's latest foray into the U.S. comes as the TMX Group Inc., the parent company for sister bourses Toronto Stock Exchange and TSX Venture Exchange, is discussing with regulators how its clearing house should deal with marijuana companies that have operations or investments in the U.S. While some U.S. states have legalized marijuana for medical and recreational use, it remains illegal at the federal level.

The exchange operator has no update on the discussions, said TMX Group spokeswoman Catherine Kee. The TMX previously said all listed companies are expected to comply with relevant laws and regulations in the jurisdictions in which they operate. Major U.S. exchanges, such as the Nasdaq, won't accept listings for cannabis companies and banks and other lenders remain wary of the industry.

Business Risk

Aphria initially listed on the Toronto Stock Exchange in March after graduating from the TSX Venture Exchange. The company acquired a stake in Copperstate Farms, an Arizona-based medical marijuana producer, in 2016 and announced plans to expand into Florida in April.

Shares of Aphria fell 0.6 per cent to $6.21 at 9:53 a.m. in Toronto.

The fact that marijuana remains federally illegal in the U.S. creates a business risk for any Canadian producer that is looking south to expand as the current administration will probably not change its policy anytime soon, said PI Financial Corp. analyst Jason Zandberg. A lot of marijuana stocks with U.S. exposure on the Canadian Securities Exchange have seen a significant decline in their share price since the issue came up and U.S. assets currently don't add value from an investment perspective, he said.

"If they continue to invest more money in the U.S., at least from my perspective, I'm not going to place any value on it," Mr. Zandberg said of Aphria's expansions plans by phone.

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The exchange operator is still discussing the issue of U.S. exposure with provincial securities regulators in Ontario, Alberta, British Columbia and Quebec, Neufeld said. There's been a lot of recent movement in the U.S. that shows support for medical marijuana is growing and Aphria expects the TMX's concerns to wane, he said. Ohio, where Aphria hopes to expand, legalized medical pot last year.

"They're not going to do something that disrupts the market," Mr. Neufeld said. The TMX opened the door to the company, he said. "Not a question, not one peep, nothing. So we proceeded."

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