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Marijuana Stocks Fall As Uncertainty Over Listings Grips The Sector

Ron Strider

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Shares of Aphria Inc., a Canadian cannabis company that also operates in the United States, tumbled more than 11 per cent in early trading on Tuesday as investors questioned the future of its listing on the Toronto Stock Exchange.

The selloff in the stock comes a day after the TSX, and the junior TSX Venture Exchange, threatened to delist cannabis firms that are operating in violation of federal laws in the U.S., even if they are abiding by certain state laws that have permitted the growth and sale of the drug.

Aphria's stock fell almost 13 per cent or $1.02 to $6.90 as of noon Tuesday.

Other cannabis stocks also plunged as uncertainty weighed on the entire sector. Maple Leaf Green World Inc., which is listed on the TSXV, fell 8 per cent. CannTrust Holdings Inc., which is listed on another Canadian market called the Canadian Securities Exchange, dropped 9 per cent.

Even the shares of companies on the TSX that say they don't do business in the U.S. weren't spared. Canopy Growth Corp., for example, fell 5 per cent and MedReleaf Corp. declined 4 per cent.

Leamington, Ont.-based Aphria is perhaps the most high-profile Canadian company operating in the U.S. with shares on the country's main market. It owns a stake in a licensed producer of medical marijuana in Arizona, one of the states that has eased restrictions on cannabis. It also has invested in another company called Liberty Health Sciences Inc., which is targeting the medical marijuana market in Florida.

On Tuesday, the company also announced that it has sold $80-million in stock to a group of underwriters led by Clarus Securities Inc. on a bought-deal basis. Aphria sold its shares at $7.25 apiece and its bankers are tasked with reselling the stock to investors.

Aphria said Tuesday in a statement that the staff notice issued by the TSX doesn't properly consider the current legal framework in the U.S. and the dynamics between the federal and state laws that govern medical cannabis. It also notes that the TSX has not determined if any issuers will be delisted from its market or exactly how it will determine if a company is violating U.S. federal law.

"The TSX staff notice is extremely broad in its application, and it is difficult to determine what, if any, impact it could have on Aphria or its business at this time," Vic Neufeld, chief executive at Aphria, said in a statement. "The objective application of such staff notice by the TSX ... may prove to be challenging in determining actual compliance with such guidance."

For months, the TSX and TSXV — both owned by TMX Group Ltd. — haven't permitted new listings of marijuana firms with ties to the U.S. Now, these venues are going to begin a deep dive of their existing issuers to ensure they, too, are compliant with U.S. federal law.

By the end of 2017, they will make contact with the roughly 25 marijuana issuers listed on their markets, says Ungad Chadda, the head of capital formation for equities at TMX. The markets will also reach out to those that have previously disclosed that they sell ancillary goods and services to the U.S. marijuana space.

From there, TMX will identify which companies' listing status should be under review. If any are deemed to be violating U.S. federal law, their stocks may be delisted, forcing them to find another stock exchange.

This week, however, cannabis investors in the Canadian market have been sent some mixed signals.

Separately, the country's securities regulators laid out their frameworks for what, how and when public companies should disclose their exposure to the U.S. cannabis industry. Instead of shutting these firms out of the market altogether, the regulators said that they'd be satisfied if companies arm the public with timely and accurate information about their dealings in the U.S., as well as caution investors that the U.S. could become more aggressive about its enforcement of federal laws.

In Canada, the majority of public cannabis companies with U.S. assets are listed today on the CSE. Unlike TMX, the CSE has approved these listings as long as the companies disclosed legal risks to investors.

"If you're violating federal law, you're out," Mr. Chadda told reporters on Monday. "We've never been about disclosure only. That's not what makes a world-class stock exchange."



News Moderator: Ron Strider 420 MAGAZINE ®
Full Article: Marijuana stocks fall as uncertainty over listings grips the sector - The Globe and Mail
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