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Securities regulators rethink U.S. pot listing policy

Some of Aphria's medical marijuana plants grow in their greenhouse in Leamington, Ont.

GEOFF ROBINS/The Globe and Mail

Canadian securities regulators are rethinking the rules that allow cannabis companies doing business in the United States to raise funds in Canada's stock markets.

Last October, the Canadian Securities Administrators (CSA), an umbrella group for the provincial securities commissions, said that these firms can go public as long as they disclose the legal risks they face in the U.S., where marijuana is legal in certain states but illegal under federal law.

To justify its decision, the CSA cited an Obama-era policy, known as the Cole Memorandum, which made it unlikely that federal law would be enforced against those operating legally in a state. But last week, the Cole Memo was revoked by U.S. Attorney General Jeff Sessions.

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Late on Friday, the CSA issued a press release saying that it was second-guessing its regime.

"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," the CSA said on Friday after stock markets closed for the week. "We will communicate more details about our position shortly."

That raises doubts over whether Canadian regulators could change course and disallow some cannabis companies with U.S. assets from tapping the Canadian public markets.

Pot companies with U.S. exposure, many of which are listed on the Canadian Securities Exchange (CSE), raced to reassure their investors after the Cole Memo was revoked, saying that there had been no change in U.S. law. Stocks across the sector plummeted at first. Then, investors started buying back in. But, amid volatility, many cannabis stocks plunged to end the week.

Medical cannabis companies south of the border, such as Florida's Liberty Health Sciences Inc., say their businesses are still protected legally. In the past, the U.S. Congress has passed spending bills that do not earmark federal funds for prosecuting offences involving medical cannabis that comply with state law. The current bill is set to expire on Jan. 19.

The Sessions memo didn't phase Sunniva Inc., a cannabis grower with exposure to the market in California. The Vancouver company listed its shares on the CSE on Jan. 10, with the blessing of the British Columbia Securities Commission.

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