Toronto exchange OK with Canopy’s US cannabis plan despite Nasdaq objection

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The chief executive of the Toronto Stock Exchange has suggested that Canopy Growth’s proposed structure to speed its entry into the U.S. cannabis market is compatible with the exchange’s rules.

The Canadian cannabis producer worked with the exchange in how the proposed deal is structured, TMX Group CEO John McKenzie told BNN Bloomberg.

Canopy shares trade as WEED on the Toronto Stock Exchange (TSX) and as CGC on the Nasdaq.

The TSX endorsement comes one day after Canopy disclosed that the New York-based Nasdaq stock exchange objects to the Canadian company’s plan to eventually consolidate the financial results of Canopy USA, according to a regulatory filing with the U.S. Securities and Exchange Commission.

Analysts said that raises questions about whether the Ontario-based cannabis producer could keep its shares listed on the Nasdaq if it proceeds with the plan.

Canopy on Tuesday announced that it would speed its entry into the American market.

Rather than waiting for the U.S. to legalize at the federal level, Canopy Growth has launched Canopy USA, which would purchase the three American marijuana businesses Canopy had agreed to buy after the U.S. ended prohibition.

Those businesses are New York-based multistate operator Acreage Holdings, California extractor Jetty Extracts and Colorado-headquartered cannabis edibles maker Wana Brands.

Canopy’s proposal calls for Canopy USA, not Canopy Growth, to own the three assets, and the Canadian business would hold nonvoting, exchangeable shares in Canopy USA.

In a note to investors, Owen Bennett, a cannabis equity analyst for New York-based investment bank Jefferies Group, wrote that the TSX’s McKenzie said he worked with Canopy and effectively invited others to do the same.

“It’s a model that can be used by other Canadian issuers that wanted to take advantage of some of those same opportunities,” McKenzie told BNN Bloomberg.

The Jefferies analyst said TSX support is “a big positive and may influence Nasdaq thinking.”

“Assuming for now Nasdaq does not change its view, even just the TSX approving this would be a big positive,” Bennett wrote in his note.

“Not just from a Canopy share price perspective but, more broadly, per the TSX CEO’s comments, it would now allow other Canadian LPs to do similarly, potentially triggering more M&A for U.S. assets, while it could also enable US (multi-state operators) to adopt the same structure and uplist to the TSX.”

Bennett added the caveat that the TSX’s stance still wouldn’t address capital market protections around federal illegality in the U.S. “and therefore would still keep many institutions and custodians away.”

“We think it would still lead to a material increase in intuitional ownership, one, from the better liquidity on a major exchange, and two, more institutions becoming more comfortable just given the clear direction of travel around U.S. cannabis reform – (President Joe) Biden’s recent order for a schedule review (of marijuana) and potentially (SAFE Banking Act) also passing in the lame duck (U.S. Congress).”