Nearly matured medical marijuana plants grow in a climate controlled growing room.James MacDonald/Bloomberg
TMX Group Ltd. says it's still deciding whether it should keep clearing trades in cannabis stocks that do business south of the border.
In addition to owning the Toronto Stock Exchange and TSX Venture Exchange, TMX operates the Canadian Depository for Securities (CDS), which is Canada's only platform for finalizing equities trades.
The U.S. cannabis laws are hazy, as some states allow the drug but it is illegal at the federal level. TMX recently clarified that it won't list cannabis stocks that do business in the United States if they violate federal law. However, CDS still clears trades of marijuana firms with U.S. assets that list on other Canadian exchanges.
The Globe and Mail first reported in August that CDS is weighing a ban on the shares of cannabis firms that have ties to the U.S. market. Such a decision would make it virtually impossible to trade these securities. The possibility that it could happen has caused confusion among investors and companies for months.
TMX continues to work with securities regulators and stock exchanges "to arrive at a solution that will clarify this matter," the company said Friday in a news release.
"We will communicate more on this as soon as we can," the release said. "In the meantime, there is no CDS ban on the clearing of securities of issuers with marijuana-related activities in the U.S."
It's obvious that CDS still has some level of discomfort with this issue, one analyst says.
"Clearly they're not at the finish line yet," said Matt Bottomley, an analyst who covers the marijuana sector at Canaccord Genuity. "I think this is an issue where the can is getting kicked down the road. There's going to be either several press releases or a final press release where they actually resolve this matter."
There are at least a dozen companies with exposure to the U.S. cannabis market that are listed on the Canadian Securities Exchange (CSE). In total, they have a market capitalization of about $2-billion.
Although TMX says it won't list marijuana companies with U.S. assets on the two exchanges it owns, it has yet to resolve what to do with at least two outliers. Aphria Inc. is the largest of the two. It has cannabis interests in Arizona and Florida, is listed on the Toronto Stock Exchange and has a market cap of $1.5-billion.
Mr. Bottomley thinks an outright ban with CDS refusing to clear trades in these stocks is unlikely. "But it's not without risk," he added. "These guys can really come back and say anything at the end of the day."
TMX's press release said the way forward is rooted in the role of the exchanges in choosing what can and can't be listed on their venues and their policies.
"This solution will be founded on each exchange's role in applying listing requirements, including exchange rules related to issuers' compliance with applicable laws," it said.
The update from TMX comes a week after cannabis company Sunniva Inc., which has assets in the U.S., was approved to go public in Canada by the British Columbia Securities Commission. It is applying to list on the CSE.