TMX cracks down on pot

Companies with business activities that violate U.S. federal law regarding marijuana could undergo a delisting review at the Toronto Stock Exchange, said The TMX Group, which operates the main index and TSX venture.

"Based on our quality control and standards that we have set for our market, our rules say that you cannot be in violation of applicable laws and regulations in the jurisdictions in which you run your business," said Ungad Chadda, president of capital formation, equity capital markets.

The group issued a staff notice Monday, saying U.S. federal law takes precedence over state laws, and issuers with ongoing business activities that violate the federal marijuana law are not complying with the requirements.

The clarification has been hotly anticipated by Canadian marijuana companies looking to get a foothold in the U.S. marijuana market as well as U.S. companies that want to access capital from Canada's public markets.

Canadian marijuana companies had largely handled the hazy legality by focusing on markets outside the U.S., or by listing on the smaller and less risk-averse Canadian Securities Exchange.

But after Canadian marijuana producer Aphria Inc., which is listed on the TSX, announced an investment in Florida in April of this year, questions about the official policy mounted and regulators took notice.

"Aphria is currently reviewing the details of the guidance," spokeswoman Nina Godard said in an email, adding the company will provide comment Tuesday morning.

The TMX noted Monday that while some states have legalized marijuana to varying degrees and conditions, under federal law it is illegal to cultivate, distribute or possess the drug in the United States. More than two dozen states have legalized medical marijuana, including eight states where marijuana is legal for recreational use.

The Obama administration had issued a guidance, known as the "Cole Memorandum," that suggested the federal government would not intervene in states where the drug is legal. But the situation has become more murky since U.S. President Donald Trump was elected and took over the Oval Office this year.

That has caused headaches for Canadian regulators, the country's stock exchanges and companies that want to invest in U.S. operations.

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