There is an irony over US policy when dealing with Canadians in the cannabis industry, soon to be legal – nationwide on Oct. 17.
In early July, Tilray became the latest Canadian cannabis company to list under the ticker “TLRY” in Nasdaq. It joined Cronos Group (CRON), which landed itself the honorary title of being the first marijuana Canadian stock to list on Nasdaq.
In May, Canopy Growth Corp. (CGC) made its debut on the NYSE, joining giants such as General Electric, Exxon, and Wal-Mart.
Some Cannabis Industry Canadians Banned
Soon after Tilray’s big news, Sam Znaimer, a Canadian big shot businessman known for investing in his country’s burgeoning cannabis industry, was the latest Canuck announced banned for life from entering the United States.
Znaimer said his ban is to “send a message” to Ottawa legalization of marijuana on a federal level in Canada – nationwide – is not acceptable by Washington.
Before Znaimer, there was Jay Evans, CEO of Keirton Inc., an equipment manufacturer, who received a lifetime ban when US border guards discovered some of his machines are used by cannabis producers.
But the irony thickens given that marijuana producers such as Tilray, Cronos and Canopy surely use cannabis equipment to produce their marijuana.
Not only that but, but these US stock exchanges must register with the US Securities and Exchange Commission (SEC), an independent federal government agency.
Marijuana – both medical and recreational – is considered an illegal drug on a federal level in the United States despite 30 US states have already legalized medical cannabis with the conservative, the deep-red state of Oklahoma is the latest joiner. Nine others states have also full permitted the recreational use of the green herb.
The Structure of the Deal
Having a marijuana dealer on a US exchange is not new.
In January 2015, SEC allowed the listing of Terra Tech Corp; a company whose business model includes cultivation and sale of marijuana.
To understand this glaring irony, Robert McVay, a partner at Harris Bricken, dubbed the news piece of Terra listing in Nasdaq as “progress.”
But McVay said “it is not a major surprise” but rather “inevitable.”
“The SEC does not really exist to enforce federal controlled substances laws,” he wrote. “It exists to protect investors from fraudulent offerings.”
Afterall, the SEC is responsible for protecting investors, maintaining the fair and orderly functioning of securities markets and facilitating capital formation.
McVay said there were signs pointing to “the legitimacy of Terra Tech’s goal of raising money to fund legal cannabis operations in Nevada, the SEC does not have the statutory authority to stand in the way.”
Nevada legalized medical marijuana in 2000 and recreational cannabis on Jan. 1, 2017.
At the time, SEC examiner overseeing the Terra Tech’s application cited “policy” in declining to accelerate registration.
While Terra appears to be fully registered, the “structure of the deal” at the time played a role.
“The SEC really did not do Terra Tech any favors.”
“Prior to filing its registration statement, Terra Tech sold convertible notes and warrants (stock purchase options) directly to the New York-based Dominion Capital. The registration statement that it filed, then, is a way to allow Dominion Capital to sell those convertible notes and warrants (or the equity that they can be converted into) on the open market.”
No Operations on US Land
For Canopy, its CEO Bruce Linton explained some of the bizarre laws governing cannabis.
While admitting the obvious – marijuana is illegal federally in the US – Linton said Canopy doesn’t have any operations south of the border and is fully compliant with the laws in every country where it operates.
Like Linton, Cronos CEO Mike Gorenstein admitted that there are more stringent rules to follow on the Nasdaq, and it won’t be able to get a physical foothold in the US before it is federally legal. “We’re able to then get US investors in while we’re still in the early days, and have that support when we operationally enter the US,” he said in a previous interview.
American Cannabis Firms Head North
Some Canadian cannabis companies have enjoyed less severe restrictions, enabling them to enlist in US exchanges, US marijuana companies, however, are feeling the brunt of the Iron Curtain between them and the federal government.
It is no surprise that more US marijuana businesses, who are also denied financial services at home, are coveting a Canadian point of entry.
In May, the Starbucks of American marijuana MedMen (CSE: MMEN OTC: MMNFF) started trading on the Canadian Securities Exchange (CSE).
Following the news, the Los Angeles-based chain’s CEO Adam Bierman acknowledged that “there are no straight roads and there are no clear paths.”
As the trend towards legalization continues its momentum, maybe strange laws like these will coalesce to – finally – make sense and most importantly bring fairness to both big and small players.