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In this Oct. 13, 2016 file photo, a tag identifies the type of marijuana plant on the medical marijuana farm near Laytonville, Calif.

Rich Pedroncelli/The Associated Press

When Hadley Ford created a company for investing in the fast-growing business of legal marijuana, the former Goldman Sachs Group Inc. investment banker left New York and headed north of the border.

While more than half of U.S. states allow marijuana for medical or recreational use, the drug is still outlawed by the federal government, starving pot entrepreneurs of institutional capital. Major stock exchanges won't accept listings for businesses that Washington deems illegal, and banks and other lenders have stayed mostly on the sidelines.

So Mr. Ford created a public company that raises money in Canada, where medical marijuana is allowed, Prime Minister Justin Trudeau supports full legalization and bankers, lawyers and accountants operate without fear of prosecution. The move gave Mr. Ford entree into a vibrant public market for cannabis and a way to fund investments in the U.S.

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"We have a $50-billion playing field all to ourselves, and the prices are ridiculously cheap," Mr. Ford said in an interview. ''You could not have created a better business model for a reformed Goldman Sachs banker to wade into."

Mr. Ford, 57, is among a growing list of entrepreneurs who are capitalizing on the difference between the two nations when it comes to marijuana. Two other U.S.-focused pot companies have followed him to the Canadian Securities Exchange, which caters mostly to small-cap mining, technology and biotech firms. CannaRoyalty Corp. began trading in December, and Canadian Bioceutical Corp. started in January.

No Hoodies

"The industry has gone from a Ziploc bag with a hoodie on the corner to now where you've got publicly listed companies in Canada acquiring assets in the United States using European money," said Canadian Bioceutical Chief Executive Officer Scott Boyes. London-based investors bought the majority of the company's recent $27-million private placement of shares, he said.

IAnthus Capital Holdings Inc., the company Mr. Ford leads, listed shares on the CSE in September. It's raised more than $50-million, including $20-million from a public offering underwritten by Canaccord Genuity Group Inc., Canada's largest nonbank brokerage. IAnthus uses the money to invest in cannabis growers and retailers in the U.S., including dispensaries in Colorado, Massachusetts, Vermont and New Mexico.

Shares of Vancouver-based iAnthus have gained 16 per cent this year, and are up 86 per cent since they began trading in 2016. The company has a market capitalization of $43-million.

The legal marijuana industry in North America grew 34 per cent last year to $6.7-billion, and sales topped $56-billion with the black market included, according to Arcview Market Research.

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Recreational States

Although Canada is beating the U.S. on the road to full legalization, states like Colorado, Oregon and Washington -- where recreational use is allowed -- are leading the world in development of new cannabis products, said Don Robinson, CEO of Golden Leaf Holdings Inc. The CSE-listed company focuses on edibles, concentrates and other products sold in the U.S. recreational market, with plans for international expansion.

CannaRoyalty also focuses on the U.S., said CEO Marc Lustig. That's because states with recreational use are at the leading edge of a market that Mr. Trudeau promises to bring to Canada, he said. Companies in Canada are currently barred from opening dispensaries and instead supply buds to customers through the mail. High-margin products like edibles and extracts that can be used in a vaporizer are all banned.

Trudeau's Vow

That will change if Canada legalizes recreational cannabis, which is likely. Since winning election in 2015, Mr. Trudeau and the ruling Liberal Party have vowed to legalize and regulate pot use for adults. Legislation is due next week to get it done by July 2018.

With that in mind, CannaRoyalty invests in U.S. marijuana products such as transdermal patches, infused candy, disposable vape pens and metered-dose inhalers, Lustig said. It also licenses its intellectual property to larger Canadian companies, such as Aphria Inc., to help it prepare for the Canadian recreational market, he said.

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Before the surprise election of President Donald Trump in November, U.S. companies that cater to the legal marijuana market were surging, including pot packager Kush Bottles Inc. Mr. Trump's appointment of ardent marijuana foe Jeff Sessions as attorney general, however, tempered some of the industry's enthusiasm. Since the election, Kush shares have dropped 43 per cent.

Because of the U.S. prohibition, companies that grow or sell pot rely on private investors to finance expansions or acquisitions. Most publicly traded companies in the U.S. that cater to the marijuana industry, including Kush Bottles and Scotts Miracle Gro Co., are careful to say they don't "touch the plant" -- even if they provide growers with fertilizers, lighting and other ancillary products.

At least one U.S. marijuana grower, Terra Tech Corp., has been able to list its shares domestically, though only over the counter. The Securities and Exchange Commission accepted the company's stock-registration filings, even though Terra Tech cultivates marijuana in California and Nevada and sells through licensed stores. Terra Tech has raised more than $40-million since it began life as a publicly traded company five years ago, CEO Derek Peterson said.

Even so, Terra Tech faces obstacles. The shares trade over the counter because Nasdaq won't accept a marijuana listing. It took a year to hire a new auditor, a process that would normally take a day, Mr. Peterson said. And landlords are hesitant to rent space for corporate offices, while attorneys are reluctant to provide services, he said.

Big Players

Mr. Peterson, 42, said he went to the public markets because that's how he knew to raise money from his prior career at Morgan Stanley, Wachovia Securities and Crowell Weedon & Co. While the federal ban in the U.S. creates headaches, he said there are also major benefits.

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"It's kept the big players out, which has allowed companies like ours to actually build," Mr. Peterson said. "If this weren't the situation, we might have woken up and it would be Constellation Brands or Phillip Morris. Who knows? It just wouldn't have been us."

For Mr. Ford, the U.S. prohibition is a dream come true because it keeps asset values down and successful companies seeking investment capital. He was a vice president at Goldman Sachs and a managing director at Bank of America Corp. before becoming CEO of ProCure Treatment Centers Inc., a closely held provider of proton therapy for cancer patients.

"The long-term trend is cannabis is going to be legal in all 50 states," Mr. Ford said. "The increase in asset value as the industry becomes legal is going to be tremendous."

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