Lexpert magazine features articles and columns on developments in legal practice management, deals and lawsuits of interest in Canada, the law and business issues of interest to legal professionals and businesses that purchase legal services.
Issue link: https://digital.carswellmedia.com/i/990152
58 LEXPERT MAGAZINE | JUNE 2018 | CANNABIS BUSINESS | Ninth Circuit in April, which ruled that the federal government can enforce federal drug laws on federal lands, even in legalized marijuana jurisdictions such as California. To no one's surprise, perhaps, the regula- tory conundrum in the US has spilt over the border. Most notably, the Canadian Securi- ties Administrators (CSA) has imposed additional disclosure expectations for is- suers with US-related cannabis activities, even those with "indirect involvement" and those providing goods and services to third parties involved in the US mari- juana industry. e requirements empha- size the uncertainty that exists in the US and recognize that enforcement of federal laws could create material consequences for such issuers. Meanwhile, e Toronto Stock Ex- change and the TSX Venture Exchange have gone so far as to suggest that compa- nies found to be violating US federal law could face delisting reviews. At least one company has taken the regulators' actions to heart: in February, Leamington, Ontar- io-based licensed medical marijuana pro- ducer Aphria, agreed to sell part of its stake in Liberty Health Sciences Inc. as part of a strategy to reduce its US holdings. Notwithstanding its imminent legaliza- tion, then, cannabis remains tainted — even on the medical side. Nowhere is this more evident than in the financing field. Although medical can- nabis became legal in 2001, production was limited and so was the need for financing. But things changed in 2016 as companies like Canopy and Aurora ramped up for major production. Still, the proposed le- galization of recreational cannabis made the banks wary. "Canadian banks are not into it, partly because of the situation in even in the 30 or so states that have legal- ized its medical use and the nine states that have allowed recreational use. e Trump Administration's withdrawal of the Cole Memorandum, which directed federal prosecutors to concentrate only on busi- nesses that violate state and federal law, has muddied the waters further for the busi- ness community. According to Scot Crow in Dickinson Wright's Columbus, Ohio office, how- ever, operators in states that have legal- ized cannabis "mostly ignore" federal law. "e federal government is being caught up not just in the US movement to liber- alization, but also the world movement — and there's no going back," he says. "Some federal agencies, like the Environmental Protection Agency and the Occupational Health and Safety Administration, are even working with cannabis businesses to ensure compliance with federal law in their areas of jurisdiction." Indeed, more than 4,000 publicly traded companies in North America are associated with cannabis. "If you look at the money cannabis is generating for state coffers, with some going back to the fed- eral government, it's going to be tough to put the toothpaste back in the tube, espe- cially now since some of that money has been allocated for various uses," Pakulis says. "Although there's still a slight bit of concern about the federal position in the marketplace, legalization is not a ques- tion of 'if ' but a question of 'when'." However that may be, the issue remains a complex one, as evidenced by a recent deci- sion from the US Court of Appeals for the the US and partly because the recreational cannabis legislation in Canada is new and fraught with confusion," says Langlois' Da- vid. "ey continue to confuse the divide between medical and recreational cannabis and remain wary of reputational risk that might taint them." For the same reason, major pharma companies have refrained from associating their brands with cannabis products. "If you're producing Tylenol, you don't want to be producing cannabis," David says. "Weed is still kind of taboo, something dark and something that people are afraid of. Every- one smokes, but nobody talks about it." Dhillon is of similar mind. "ere's a myth that it's easy for a cannabis company to raise money, but that's true only for the large players," he says. "On the private com- pany side, unless you have reached a fairly advanced stage in your licensing applica- tion, it's hard to get money to build out fa- cilities. In some cases, it's even difficult to get bank accounts opened in the industry." It was only very recently that the market saw the first leap into the sector by a ma- jor Canadian bank. In January, Bank of Montreal (BMO) committed to five mil- lion shares of Canopy in a C$175 million bought deal. e move, however, didn't seem to encourage the other big banks to take the leap, at least not imminently: fol- lowing the BMO deal, most made public statements that can at best be character- ized as cautious."is industry has been built without the benefit of participation from the major banks," says Osler's Tra- chuk. "Investment bankers, particularly GMP Capital, Canaccord Genuity and Cormark Securities, own this space on the equity side." Although insurance companies, phar- ma, large tobacco companies, agra con- cerns and hi-tech entities are venturing into the field, equity financing remains a "IT TOOK AT LEAST TEN YEARS BEFORE HC GOT IT RIGHT, AND NHP REGULATION IS STILL EVOLVING. MEANWHILE, THERE WERE LOTS OF UPS AND DOWNS AND SIDEWAYS, AND I THINK CANNABIS WILL BE A SIMILARLY WILD RIDE." WENDY HULTON > DICKINSON WRIGHT LLP