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Medical marijuana plants are pictured in this file photo.

Dave Chan/The Globe and Mail

The top executive of the country's largest stock exchange said his company is considering a move that could make it harder for investors to buy and sell the shares of marijuana companies with U.S. assets, raising doubts about the ability of some public Canadian pot firms to raise cash and expand south of the border.

Lou Eccleston, chief executive officer at TMX Group Ltd., said one of the company's business units is in talks with securities regulators and other industry players to determine whether or not it will continue to handle trades in the shares of these companies. More than a dozen marijuana companies on Canadian stock exchanges have U.S. investments or operations, but there are questions around the legality of their operations: Cannabis can be legally used and cultivated in certain American states but it is illegal under federal law.

The business unit, known as the Canadian Depository for Securities Ltd. (CDS), sits at the heart of Canada's financial markets. CDS is a clearinghouse that ensures that when investors make trades in stocks and bonds in Canada, the cash and securities end up in the right hands.

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If CDS refuses to clear and settle trades in these cannabis stocks, it would make those companies unattractive to many investors, hindering parts of the budding marijuana industry.

Canada has become a magnet for weed companies looking to raise capital from the public, in part because of the country's more relaxed attitude to the drug. Ottawa is moving toward legalization next year. It could also stifle the growth of Canadian pot producers that are eyeing U.S. expansion in order to reach more clients.

"We'd like to get clarity on if anything has to change at all soon. We're in those discussions as we speak. We are trying to facilitate those discussions as quickly as we can," Mr. Eccleston said on Thursday in a phone interview.

Such a move by CDS would have far-reaching implications, handicapping those stocks that are listed not only on the two stocks exchanges owned by TMX but also on rival markets, such as the Canadian Securities Exchange.

The CSE is a small exchange that has made a name for itself as a hotbed for pot stocks. The venue has attracted almost 50 listings – most of them small – in the nascent cannabis sector, including about 10 with exposure to the United States. It counts on these companies to propel its trading business: So far in 2017, 52 per cent of the volume on the CSE is in trading of cannabis stocks.

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A move by the clearinghouse to stop handling trades of some cannabis stocks would be most detrimental to the CSE, raising the spectre of a potential conflict of interest for TMX Group, which competes with the CSE for listings and trading.

The are 23 issuers in the cannabis business on the two exchanges Mr. Eccleston's company runs, the Toronto Stock Exchange and more junior TSX Venture Exchange. Those companies have a total market value of $5.2-billion as of June 30.

TMX's two exchanges and the CSE don't have the same listings requirements. In fact, Mr. Eccleston said "most of the companies that trade on the CSE wouldn't meet our listings requirements." TMX has no control over what can be listed on these other markets, but CDS still has to clear and settle trades of stocks listed on all markets, potentially exposing CDS to greater liability.

Mr. Eccleston made his comments one week after The Globe reported the possibility of CDS unveiling an outright ban.

Before Thursday, TMX had said little publicly about the ongoing deliberations. And over the last week, uncertainty has clouded the market for marijuana shares – to the irritation of some players in the pot sector and those who would finance them.

"We do not want there to be any uncertainty in the market," Mr. Eccleston said.

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Mr. Eccleston said that CDS is concerned about the potential legal risks of facilitating trades in marijuana companies with U.S. investments. "It's hard to understand what really is the situation right now in the U.S.," he said.

While the tension between U.S. federal and state statutes has long existed, the Obama administration clarified in 2013 that the federal government would not interfere with marijuana businesses in states that have legalized the drug, as long as those businesses abide by a series of guidelines. The document that outlines the policy is known as the Cole Memorandum.

It is far from certain whether U.S. President Donald Trump's administration will abide by the same policy. His Attorney-General, Jeff Sessions, is a known skeptic on marijuana legalization; recently, he warned the governors of four states that he had "serious concerns" about their pot policies, according to The Los Angeles Times.

"The Cole Memorandum was under the Obama administration. There's a very different administration now in place, and it creates uncertainty around where it's going to go," Mr. Eccleston said.

"As things start to develop with a new administration – new policies – we are just trying to understand what that means. This is for CDS we are talking about, not listings. Listings, we haven't changed our policy. We enforce what's there."

Mr. Eccleston also denied media reports that said TMX has put a temporary ban on cannabis stocks with U.S. assets from listing on its own exchanges.

"There was no unwritten, temporary bans on any companies. Our policy is our policy. It's out there and it's enforced, regardless of the industry," he said. "There is a requirement that everyone operates within the guidelines, in particular the legal guidelines."

But those can be murky in the U.S. pot sector. Mr. Eccleston said that existing issuers can be put under review for potentially breaching the exchange's listings rules. But that's not a ban, but more like normal protocol in the stock-exchange business.

Lawyers, bankers and companies waiting for the TMX to issue a cannabis-specific listing policy should wait no more: It looks like it won't be coming.

"We don't expect to issue a cannabis policy," Mr. Eccleston said. "We might come out and reinforce our listings policy and be clear about it. But we're not about to launch a cannabis policy."

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