Part of cannabis and investing
Toronto-Dominion Bank is getting more comfortable with the cannabis sector.
The bank made an unusual move in April to restrict how its investment advisers could talk to clients about the burgeoning industry, banning staff from recommending all but three Canadian pot stocks. At the time, TD said it approved medical marijuana growers Canopy Growth Corp., Emerald Health Therapeutics Inc. and Emblem Corp. because they don’t have any exposure to the United States, where the drug is prohibited under federal law but legal in certain states.
TD has been reviewing the space and is now adding 16 more cannabis firms to its approved list of equities, including Cronos Group Inc. and CannTrust Holdings Inc., according to a June 27 e-mail sent to advisers. Five of these companies are listed on the Toronto Stock Exchange and 11 are listed on the TSX Venture Exchange.
In order to be included on TD’s “eligible for solicitation list,” an issuer must be listed on the TSX or the TSXV and can’t have any prohibited U.S. touchpoints as determined by the bank, TD spokesman Paolo Pasquini said.
In October, TMX Group Ltd., the largest operator of stock markets in Canada, clarified its policy to restrict any cannabis company violating U.S. federal law from listing on the TSX or TSXV. The markets conducted a review of their issuers, forcing those breaching the policy to offload their U.S. assets to keep their listing. TMX has more than two dozen pot stocks listed on the TSX and TSXV, including Aurora Cannabis Inc. and Aphria Inc.
But advisers in the TD Wealth Private Investment Advice (PIA) network are still not permitted to recommend shares of Aurora and Aphria, two of Canada’s largest cannabis growers, nor the four Canadian marijuana exchange-traded funds (ETFs).
Aurora said in June that it was spinning out its U.S. assets and applying to list that company – named Australis Capital Inc. – on the Canadian Securities Exchange, where looser listing rules than the bigger TSX have seen it become home for many pot companies. Australis owns land in the state of Washington, where cannabis is legal for medical and recreational use, and has an interest in a Michigan company that has applied with the state to become a fully licensed medical grower.
Aphria has begun offloading its U.S. holdings, divesting its stake in an Arizona grower in February and selling a quarter of its equity stake in Florida’s Liberty Health Sciences Inc. The rest of its Liberty shares are being held in escrow and will be sold to the same buyers once a lock-up period ends and they become free trading.
Canada’s largest pot ETF – the Horizons Marijuana Life Sciences Index ETF (HMMJ) – has more than $796-million in assets under management and aims to track the North American Marijuana Index. HMMJ only includes 40 of the 49 stocks (including Aurora and Aphria) as it does not include those companies primarily focused on serving the medical or recreational marijuana market in the United States. Despite the fund listing this constraint, it does not appear on TD’s recommendation list.
TD would not answer specific questions about the approval process for its list, but Mr. Pasquini said “the cannabis industry is complex and evolving rapidly. As a result, TD has policies in place to manage the advice we provide to clients about investing in companies in this sector. Our most recent update reflects our ongoing evaluation of this emerging market. We expect our views will continue to evolve and develop with the industry.”
TD Wealth PIA serves clients with more than $750,000 in investable assets. The unit has more than 740 advisers, of which 200 are discretionary portfolio managers, meaning their clients defer individual investment decisions to them.
If a PIA client tells his or her adviser to buy shares of any marijuana firm or ETF, the adviser is allowed to make the trade. But if a client says they’re interested in the marijuana sector as a possible investment, a TD adviser can only recommend a stock that has been added to the approved list.
Last month, Parliament lifted the 95-year-old prohibition on cannabis and regulated the non-medical use of the drug, freeing millions of adults to use marijuana when the law comes into effect on Oct. 17.
As with any emerging sector, investments in legal marijuana businesses are risky. Most of the companies are startups and have booked little to no revenue. Yet, many investors are upbeat about their prospects, pouring millions into the sector despite the many unknowns – all in the hopes of cashing in on the green rush as countries around the world legalize and regulate cannabis.
Here’s the full list of pot stocks that TD has approved:
Canopy Growth Corp. -WEED
Emblem Corp. -EMC
Emerald Health Therapeutics -EMH
Cronos Group Inc. -CRON
Naturally Splendid Ent Ltd. -NSP
Weedmd Inc. - WMD
Tetra Bio-Pharma Inc. -TBP
Supreme Cannabis Co. Inc. -FIRE
Medreleaf Corp. -LEAF
Abcann Global Corp. -ABCN
Newstrike Resources Ltd. -HIP
ICC Labs Inc. -ICC
Harvest One Cannabis Inc. -HVT
Delta 9 Cannabis Inc. -NINE
National Access Cannabis Corp. -META
CBD Med Research Corp. -CBM/H
Neptune Technologies & Bioress -NEPT
Canntrust Holdings Inc. -TRST