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Medical marijuana is pictured at a Smith Falls facility on Jan. 21, 2016.Dave Chan/The Globe and Mail

Canada's stock market has been ablaze with reefer madness, but the country's largest exchange is grappling with how to deal with pot companies that have investments in the U.S., where marijuana is still banned by federal law.

There could be more certainty soon, according to Vic Neufeld, the chief executive officer of licensed producer Aphria Inc. TMX Group Ltd., the parent company for sister bourses Toronto Stock Exchange and TSX Venture Exchange, has held several conversations with Aphria and is probably "very close" to making a policy announcement, Neufeld said.

TMX is in a predicament because on the one hand many of the Canadian producers that investors have fallen in love with are increasing their U.S. footprint or are making plans to do so. But at the same time, the exchange mandates that all listed companies are expected to comply with relevant laws and regulations in the jurisdictions in which they operate, TMX spokeswoman Catherine Kee said. She declined to comment on whether a new policy for pot producers is in the works, adding that the company doesn't comment on specific issuer matters.

"It's a real delicate issue for them," Aphria's Neufeld said. The company is listed on the TSX and is making a $25 million investment in Florida as part of its U.S. expansion strategy. "They don't want to get in the way of Canadian commerce, but they also understand in the U.S., federally, it's a no-no."

Legalize It

Recreational cannabis is expected to become legal in Canada by this time next year, and there's been an explosion in companies cultivating the stuff. At least 10 marijuana companies have new listings this year on the TSX, TSX Venture and rival Canadian Securities Exchange, and some 51 enterprises have gotten the green light to grow pot. The upstart industry is eyeing the U.S. as a potential behemoth market.

Yet, marijuana has fallen into a gray area in the U.S., where eight states have legalized medical and recreational marijuana, including Colorado and Nevada. The drug is still outlawed by the federal government.

No major moves have come against states that have legalized, but many in the Trump administration, Attorney General Jeff Sessions in particular, are no friends of the industry. 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.

In the meantime, TMX appears to be taking a case-by-case approach to how it handles companies with U.S. interests. While Aphria is still listed even with its Florida investment, other producers have faced some push back.

No Consistent Answer

Canadian Bioceutical Corporation voluntarily delisted from the TSX Venture Exchange this year when the company was told it couldn't pursue opportunities in the U.S. recreational market, said CEO Scott Boyes. The uncertainty has hampered the company's efforts to partner with other larger Canadian firms, he said.

TMX hasn't clearly explained its strategy and is depriving investors of a diversity of marijuana companies to choose from, said CannaRoyalty Corp. CEO Marc Lustig. The Ottawa-based company has the bulk of its assets in the U.S. and is listed on the Canadian Securities Exchange.

"They tell different companies different things about a policy, a made-up policy that doesn't actually exist," Lustig said by phone. "Nobody has an answer and nobody has a clear, consistent answer, which is a joke."

That allegation isn't true, Ms. Kee of TMX said.

"Ensuring compliance with TMX's published rules and policies across our broad issuer base is an integral, ongoing function we perform and each issuer is handled on a fact-specific basis," Ms. Kee said.

Rival Exchange

In the meantime, competitor Canadian Securities Exchange has become a haven for tiny, unlicensed Canadian companies as well as U.S.-based corporations barred from selling shares in their domestic markets.

TMX is signalling it has "deep concerns" about listing companies with U.S. exposure and is reviewing eligibility for listing, said Canadian Securities Exchange CEO Richard Carleton. Marijuana companies with U.S. investments already make extensive disclosures on their operations and any move to restrict or prevent companies from listing will be a disappointment to investors, he said.

Officials with Canadian Securities Administrators, an umbrella organization for provincial and territorial regulators, are currently discussing these issues with the exchanges, Ontario Securities Commission spokeswoman Kristen Rose said in an email.

Legality Risk

Some Canadian companies would rather stay out of the U.S. than take the legality risks associated with the market.

Institutional investors should be able to feel confident that funds from Canadian marijuana operations are not going toward illegal activities, and disclosing U.S. operations in a prospectus is not a sufficient way "to explain away breaking a law," said Bruce Linton, the CEO of pot producer Canopy Growth Corp. The company isn't pursuing any U.S. investments, he said.

"If there's a doubt, err on the side of clarity," Mr. Linton said.

A new TMX policy would give licensed producers clarity on how to proceed for the number of of companies that are considering expansion in the U.S. or embarking on deals with brands that produce infused products in states such as Colorado and Washington, Aphria's Neufeld said.

In TMX's review, the company is examining both companies that are directly investing in U.S. marijuana production and those that have more passive investments, such as marketing agreements, Neufeld said.

"I just hope when the new policy comes down it's not punitive to my shareholders," Mr. Neufeld said by phone. "We feel very, very confident what we've done is all legal in the concept of Canadian law."

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