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An Aphria employee looks out over a crop of cannabis. Medical-marijuana producer Aphria Inc., which has a market cap of $2.7-billion, is one of two companies listed on markets owned by TMX Group Ltd.

The Canadian Press

Executives in the cannabis industry are worried about the fallout from a move announced Friday by Canadian securities regulators to reconsider rules that allow marijuana firms with U.S. operations to go public and raise money in Canada, as long as they disclose the legal risks they face south of the border.

Eight days after U.S. Attorney General Jeff Sessions revoked an Obama-era policy, referred to as the Cole Memorandum, that limited how federal prosecutors could investigate state-licensed marijuana companies, the Canadian Securities Administrators (CSA) says it is rethinking the approach it instituted last October.

"The CSA is considering whether our disclosure-based approach for issuers with U.S. marijuana-related activities remains appropriate in light of the rescission of the Cole Memorandum. Issuers with no U.S. marijuana-related activities and that otherwise operate in compliance with applicable Canadian laws are not the focus," the release issued late Friday says. "We will communicate more details about our position shortly."

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Executives and industry observers are expressing concerns over how the CSA's update is being perceived by jittery investors, who have sent pot stocks on a wild ride in recent weeks, rallying to stunning levels to start 2018 before broadly selling off last week on little news. Shares of companies with U.S. exposure are set to come under even more selling pressure, industry sources say, even as some U.S. politicians have vowed to defend against federal crackdowns.

"Am I worried from an actual action perspective? No," said Hadley Ford, chief executive at New York-based iAnthus Capital Holdings Inc. "Am I worried that this'll rattle the markets and my stock will go down? Yeah. Any time there's news like this, it tends to have a negative impact." iAnthus is one of at least 20 public companies in Canada that are exposed to the U.S. cannabis industry.

"I'm surprised they didn't make this statement a week ago," said Marc Lustig, CEO of CannaRoyalty Corp., which is pushing into California.

He is asking that regulators avoid a knee-jerk reaction to what's happening in the United States. "I would say let's take a breather on [listing] any new companies so this doesn't get any more complicated. But also, let's keep status quo until we get some clarification on what any of this means."

Vahan Ajamian, an analyst who covers cannabis at Beacon Securities Ltd., echoed the CEOs' concerns. "Once momentum turns like this, stocks go down for multiple days in a row. They'll all probably be down again tomorrow, and this may exacerbate the U.S. ones a little bit more than the Canadian ones," he said Sunday.

"They [the CSA] are in a tough spot. What are they going to do, delist $6-billion worth of companies?"

Medical marijuana producer Aphria Inc., which has a market cap of $2.7-billion, is one of two companies listed on markets owned by TMX Group Ltd., which banned new cannabis issuers with U.S. assets last October.

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The others, including iAnthus and CannaRoyalty, are listed on the Canadian Securities Exchange (CSE), whose business has benefited from the CSA's disclosure rules. These 18 stocks represent 5 per cent of the CSE's total listings but account for 22 per cent of all trading in January, changing hands 655 million times. (In general, marijuana stocks have made up 65 per cent of the CSE's volume so far this month, as traders jump in and out of these shares amid high volatility.) If the CSA toughens its stance on U.S. pot, the CSE has the most to lose.

Members of the CSA met last Tuesday to discuss this issue, says Richard Carleton, the CEO of CNSX Markets Inc., which runs the CSE. A spokesman for Louis Morisset, chair of the CSA, declined to confirm the meeting took place or comment further. Maureen Jensen, chair of the Ontario Securities Commission (OSC), which spearheaded the CSA's approach to U.S. cannabis, did not reply to an e-mail requesting an interview on Sunday.

"We really don't have any visibility into what the nature of the discussions was," said Mr. Carleton, adding that he spoke to the OSC last week. "I'm just guessing."

When asked what else the CSA could do, he said, "I don't know," adding that two options could be to cease trading in these companies or force them to divest their U.S. assets. "These are pretty draconian measures that you'd be talking about.

"We told them they shouldn't be doing anything until we see whether or not there is a legislative response" in the United States, Mr. Carleton said.

His comments come as U.S. Congress faces a Friday deadline to pass a spending bill to avert a government shutdown. In the past, the U.S. Congress has passed spending bills that don't earmark federal funds for prosecuting offences involving medical cannabis that comply with state law. The amendment that touches on medical cannabis has withstood multiple legal challenges in court. The current bill is set to expire on Jan. 19 and participants are watching to see if these protections stay the same, are expanded or are removed.

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Many local officials in states that have eased restrictions on cannabis, including U.S. attorneys, politicians and law enforcement, have publicly denounced the move by Mr. Sessions and pledged to fight for the state rights.

On Friday, a letter was sent to House leaders and the committee that controls U.S. government spending asking that any new funding bills restrict the federal government from pursuing cases against those abiding by local laws in most states. The letter, which was signed by 69 members of Congress, urgently requests that all commerce related to marijuana in these states be shielded from any potential federal crackdown. Such a move could offer those serving the recreational cannabis market similar protections enjoyed by medical players under the current spending bill.

"Their [the CSA's] only hope is that they can stall for time and more clarity comes out of the U.S.," iAnthus CEO Mr. Ford said.

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