On October 16, 2017, the Toronto Stock Exchange and the TSX Venture Exchange (the “Exchanges”) clarified their position that any company engaging in activities related to the cultivation, distribution or possession of marijuana in the United States is not in compliance with the listing requirements of the Exchanges and may be subject to a de-listing review.
The Exchanges stated that, regardless of the industries in which they operate, companies listed on either Exchange must comply with all laws, rules and regulations applicable to their business or undertaking. While a number of U.S. states have legalized the cultivation, distribution or possession of marijuana to various degrees and subject to various conditions, marijuana nevertheless remains a Schedule I drug under the U.S. federal Controlled Substances Act. This means it is illegal under U.S. federal law to cultivate, distribute or possess marijuana in the United States. Furthermore, financial transactions involving proceeds generated by, or intended to promote, marijuana-related business activities in the U.S. may form the basis for prosecution under applicable U.S. federal money laundering legislation. While there was previous U.S. federal guidance concerning the enforcement of these legislative provisions, such guidance does not have the force of law and can be revoked or amended at any time.
Consequently, companies with ongoing business activities that violate U.S. federal law regarding marijuana are not complying with the listing requirements of the Exchanges. Such business activities may include, in order of concern to the Exchanges:
- direct or indirect ownership of, or investment in, companies engaging in activities related to the cultivation, distribution or possession of marijuana in the United States;
- commercial interests or arrangements with companies engaging in activities related to the cultivation, distribution or possession of marijuana in the United States that are similar in substance to ownership of, or investment in, companies engaging in activities related to the cultivation, distribution or possession of marijuana in the United States;
- providing services or products that are specifically designed for, or targeted at, companies engaging in activities related to the cultivation, distribution or possession of marijuana in the United States; or
- commercial interests or arrangements with entities engaging in the business activities described in (iii).
The Exchanges noted that if a listed issuer is engaging in activities that are contrary to the listing requirements of the Exchanges, the Exchanges have the discretion to initiate a delisting review.
All that being said, the Exchanges stated that they continue to welcome all qualified applicants in the marijuana sector that operate within Canada and comply with applicable Canadian law.
It is also noteworthy that, despite the position of the TSX and the TSXV, the Canadian Securities Exchange continues to list companies engaging in activities related to the cultivation, distribution or possession of marijuana in the United States.
Invitation for Discussion:
If you are involved in the marijuana sectors, whether in Canada or the U.S., and are looking to list on a Canadian exchange, please do not hesitate to contact one of the lawyers in the business law group at Linmac LLP.
Disclaimer:
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.