Back to all publications
Oct 26, 2017

TSX, TSX-V and CSA Clarify Their Positions on Listed Entities with Ties to U.S. Marijuana Market

By Richard M. Kimel and Tyler Brent

On October 16, 2017, the Toronto Stock Exchange (“TSX”), the TSX Venture Exchange (together with the TSX, the “Exchanges”) and the Canadian Securities Administrators (the “CSA”) released separate guidance clarifying their positions on the regulation of entities with ties to the U.S. marijuana market.

The Exchanges released identical notices confirming that listed entities are not permitted to engage in the U.S. marijuana market. The Exchanges have always required applicants and listed entities to comply with all laws, rules and regulations applicable to their businesses. The Exchanges’ bulletins reminded that, despite the “Cole Memorandum,” marijuana remains a Schedule I drug, prohibited by the U.S. federal Controlled Substances Act. Therefore, entities that cultivate, distribute or possess marijuana in the U.S. (“Subject Entities”) are considered by the Exchanges to be engaging in illegal activity in contravention of the Exchanges’ policies. Further, the Exchanges suggested that financial transactions involving U.S. marijuana businesses may contravene U.S. money laundering rules. Non-compliance with the Exchanges’ requirements could lead to a delisting. Those following the space should not be surprised with this news, given that it is simply a formalization of the Exchanges’ recent informal positions.

The Exchanges also warned that entities that own Subject Entities either directly, indirectly or in substance are considered to be engaged in the business of U.S. marijuana, and therefore at risk of delisting. Similarly, entities that target Subject Entities with their products or services, or have commercial arrangements with such entities, may also be considered to be in breach of the listing requirements.

The Exchanges announced that they expect to complete reviews of all of their listed entities by the end of the year. The Exchanges expect listed entities to take steps to ensure they are in compliance with their rules, meaning that some companies may need to divest certain U.S. interests or transfer their listing to other exchanges.

The Exchanges’ approach comes in contrast to the CSA requirements, which were clarified by Staff Notice 51-352 (the “Staff Notice”). The CSA considers securities regulation to be primarily disclosure-based. Accordingly, the Staff Notice focused on disclosure requirements for listed entities, which require each entity’s disclosure fairly presents all material facts and risks. The Staff Notice emphasized that the CSA’s disclosure-based approach is premised on the entity complying with U.S. laws at the state level.

The CSA recognized that there is uncertainty associated with operating in the U.S. marijuana industry because the federal government’s policy towards non-enforcement of the federal prohibition (i.e. the “Cole Memorandum”) could change at any time. However, the CSA considered this to be largely a business risk, and barring public interest concerns, not a securities law violation provided adequate disclosure is made to investors. Specific disclosure recommendations were included in the Staff Notice as replicated here in Table 1.

Table_Cannabis Newsletter

Cannabis companies applying to be or already listed on the Canadian Securities Exchange (“CSE”) will be relieved by the Staff Notice, as it largely accords with the CSE’s existing position. Consequently, companies with ties to U.S. marijuana can still list publicly in Canada and comply with our securities laws, but should consider friendlier alternatives to the TSX/TSX-V, such as the CSE.

*Tyler Brent is a 2017/2018 articling student at the firm. 

Areas of Expertise

Related Industries

Related Publications

Publications Article
COVID-19 Travel Restrictions and Tax Residency Relief By Louise R. Summerhill and Jesse L. Waslowski May 22, 2020 On May 19, the Canada Revenue Agency released guidance respecting potential unexpected tax reside... On May 19, the Canada Revenue Agency released guidance respecting potential unexpected tax residency consequences resulting from the travel restrictions around COVID-19.
Publications Article
Tax Limitation and Appeal Periods Extended By Louise R. Summerhill, Josh Kumar and Jesse L. Waslowski May 22, 2020 As part of the government’s ongoing response to the pandemic, draft legislation was proposed on M... As part of the government’s ongoing response to the pandemic, draft legislation was proposed on May 19, 2020, to extend limitation periods and appeal deadlines related to tax reassessments and disputes. Similarly, the Tax Court of Canada further extended its closure period.
Publications Article
Rent Relief Update #2- The Canada Emergency Commercial Rent Assistance Program By Kenneth Pimentel, Monty Warsh, Marco Gammone and Faruk Gafic May 21, 2020 By way of update to our latest publication entitled “Rent Relief Update – The Canada Emergency Co... By way of update to our latest publication entitled “Rent Relief Update – The Canada Emergency Commercial Rent Assistance Program,” the Canada Mortgage and Housing Corporation has released an updated publication that provides further clarification on the details of CECRA and tem...