By Matt Lamers
A lack of clarity over regulations governing Canadian marijuana stock listings with exposure in the United States has had an impact on how some of the nation’s MJ companies do business.
Industry executives said the uncertainty has affected everything from innovation and employment to capital deployment and business relationships.
A cloud has been hanging over the industry for months because TMX Group – the parent of the Toronto Stock Exchange (TSX) and the TSX Venture Exchange – has failed to develop a clear policy for publicly listed companies that also have business ties to the U.S. cannabis industry.
TMX announced last week that it was in talks with Canada’s securities regulators over the clearing of securities of issuers with marijuana-related activities in the United States.
The outcome of those talks is up in the air.
“Uncertainty is bad,” said Khurram Malik, a partner with the Toronto financial advisory firm Jacob Capital Management. “Beyond spending money (to increase) capacity, you’re in a bit of a limbo in terms of where you want to spend those dollars.”
He noted that regulatory uncertainty makes it harder for companies to know how best to deploy capital, given that a change in the rules can have an impact on how money should be allocated for operating expenditures and capital expenses.
“Any time there is uncertainty, it’s a basic principle that in a very expensive sector to build from an Opex/CapEx standpoint, it’s going to make people nervous, as it should,” Malik said.
A little over a dozen of Canada’s approximately 70 listed cannabis companies do business in some of the 30 states – plus Washington DC – that have legalized cannabis for medical use.
Marijuana Business Daily spoke with executives about how the uncertainty is, and is not, affecting their business plans.
Hadley Ford, iAnthus CEO
Vancouver-based iAnthus Capital Holdings (Canadian Securities Exchange: IAN) owns, operates and partners with licensed cannabis operations throughout the United States.
“The recent media conjecture and lack of regulatory clarity surrounding CDS has impacted us. We have not changed our business decisions. But, as we are active in the public capital markets to fund our operations, any time spent dealing with the issue is time away from educating investors on the growth opportunity in our stock.
“Secondly, uncertainty, no matter how unfounded, will keep some capital on the sidelines, making access more difficult and the cost higher. We hope in the near future this situation will be alleviated as TMX and CDS provide the markets with clarity on their thinking around this issue.”
Greg Engel, Organigram CEO
New Brunswick-based OrganiGram Holdings (TSX Venture: OGI) is a Canadian licensed producer with no U.S. exposure.
“TMX Group’s latest statement didn’t clear anything up for me. It wasn’t definitive. I think it’s critical for the TMX and CSE to issue a policy. We have a period of uncertainty right now, and that period of uncertainty is impacting the marketplace.
“There are numerous U.S. companies that approach us about investments, but we have made a corporate decision to not pursue those investments at this point because of a lack of guidance and inconsistency.”
Marc Lustig, CannaRoyalty CEO
Ottawa-based CannaRoyalty Corp. (CSE: CRZ) is a fully integrated investor in Canadian and American initiatives.
“The press release from TMX Group confirming that no CDS settlement ban is currently in place doesn’t really change the issue, and it fell short of ending the confusion for good. The reality is this situation and unnecessary confusion should never have arisen, and in digging themselves such a large hole, the TMX has caused undue confusion to all cannabis market stakeholders – namely investors and issuers.
“Since we strongly believe this is unenforceable, we don’t actually change anything in our business because we’re confident in our theses that we’ve done everything in compliance with U.S. law at the state level and Canadian law. Our plan does not change at all in terms of spending on innovation or executing our business model of aggregating the best cannabis assets in the sector.
“Can you imagine the Nasdaq or (New York Stock Exchange) floating the idea of exerting their influence in the U.S. market on the CDS equivalent called (Depository Trust Co.) to possibly not settle trades in any particular sector? Obviously not – because they would never have allowed such a ridiculous situation to arise in the first place and because they would be instantaneously sued into oblivion.”
Brad Rogers, CannTrust Holdings president
Vaughn-based CannTrust (CSE: TRST) is a federally regulated licensed producer with operations in both Canada and the United States.
“It’s stymying innovation, employment and growth. It’s really putting a throttle on where Canada could be in the grand scheme of things. It’s adding one more layer and one more element of subjectivity into an investment.
“For some companies, there is a fine line between what is considered ‘U.S. exposure.’”
Matt Lamers can be reached at [email protected]