Cannabis companies that do business in the United States can keep listing, trading and clearing their shares in Canada, avoiding the worst-case scenario that could have seen them banned outright.
On Thursday, the country's only clearinghouse for stocks simply said it's not in its mandate to judge any of the companies that have been allowed to list shares on any of Canada's four stock exchanges, putting months of regulatory uncertainty to rest.
The news will be a boost to almost two-dozen public firms that operate in the United States and are listed today on the Canadian Securities Exchange (CSE). The issue has weighed heavily on their shares, which have traded at a discount to their Canadian peers. The clarity could also ease concerns of other American companies that were seeking to go public in Canada.
After months of studying the matter, the Canadian Depository for Securities Ltd. (CDS) released a document on Thursday outlining who does what in the equities markets. It confirmed that the rules governing what is listed should be left to stock exchanges and their regulators.
"CDS's role is clearly not to be the decision maker of what should or should not be listed inside of the system," said Glenn Goucher, president of CDS. "While we recognize that there are different risk appetites and different approaches to doing business in the country, that is not our domain." The Toronto Stock Exchange, which, as with CDS, is owned by TMX Group Ltd., isn't listing shares of cannabis companies breaching U.S. federal law. On the other hand, the CSE will.
When asked what took so long, Mr. Goucher acknowledged that the review process was lengthy, saying his organization was "as confused as other people in the marketplace. And without trying to bad mouth our organization too much, we're not the fastest mover in the system – by design. We're very thorough and analytical in what we do."
Separately on Thursday, Canadian securities regulators issued a revision to guidance they first published last October, instructing marijuana companies with U.S. assets to supply their investors with more detailed disclosure about the legal risks they face in the U.S., where marijuana is legal in many states but illegal under federal law.
The revision also removes any mention of an Obama-era policy that was rescinded in January.
The new version comes nearly a month after the Canadian Securities Administrators (CSA) said it was reviewing the rules it had put in place last October that allowed these firms to raise funds in Canada's stock markets.
Last year, to justify its move, the CSA cited a policy that came to be under the Obama administration that made it unlikely that federal law would be enforced against those operating legally in a state. But last month, that guidance, known as the Cole Memo, was revoked by U.S. Attorney-General Jeff Sessions. Instead, he handed the decision of when to enforce federal law to prosecutors in each state.
As part of the revised policy, the CSA is now calling on these issuers to quantify how exposed they are to the U.S. market, disclose if a legal opinion confirming that they are abiding by state law and the exposure they face under federal law has been obtained, the risk that third-party service providers could stop doing work with the issuer and the risk that regulatory bodies can impose certain restrictions on the issuer's ability to operate in that country.