O Canada! What Canada’s Nationwide Legalization of Cannabis Means for American Financial InstitutionsToday marks a significant shift in cannabis policy, both domestically and internationally, as Canada becomes the first industrialized nation in the world, and only the second nation overall, to legalize cannabis. This follows the passage of The Cannabis Act in June of this year, which legalized cannabis at all levels of government.

With this blessing from the highest level of the Canadian government, Canada’s legal-cannabis industry is expected to grow to $7.2 billion by 2019. Combined with the $21 billion in sales expected in 2021 in the United States in states where cannabis has been permitted under state law, this presents a lucrative and growing North American market for cannabis. Fueled by the desire to enter the largely untapped legal-cannabis market and hungry for capital, cannabis companies have begun listing on stock exchanges in both Canada and the United States. Several major players in the Canadian cannabis industry have up-listed to United States exchanges. In the last eight months alone, Canopy Growth, the largest Canadian cannabis company, up-listed to the New York Stock Exchange, Cronos up-listed to the NASDAQ, and Tilray became the first cannabis IPO on a United States exchange. Following the lead of these companies, Aurora Cannabis officially filed to list on the New York Stock Exchange just last week.

Alternatively, because United States exchanges refuse to list companies that violate United States federal law, United States cannabis-related businesses have looked north. The Canadian Securities Exchange, in particular, has become a haven for United States cannabis businesses seeking to raise capital but unable to list on the major United States exchanges. Prominent United States cannabis businesses Acreage Holdings – backed by former Speaker of the House John Boehner – and LivWell have announced plans to follow in the footsteps of MedMen and list on the Canadian Securities Exchange this fall.

These developments raise issues for American financial institutions providing, or seeking to provide, services for cannabis businesses from both nations. The federal prohibition on cannabis in the United States still looms large for financial institutions. As discussed in a recent post in this series, many financial institutions have chosen to avoid working with cannabis-related businesses altogether rather than navigate the compliance and reporting requirements associated with these businesses.

With the legalization of cannabis at all levels of Canadian government, the trend of Canadian cannabis businesses listing on United States exchanges likely will continue, adding more complexity and uncertainty to an already murky landscape. And while the official legalization of cannabis in Canada is a significant development in the growing trend of loosening cannabis laws here and abroad, it also presents a risk to both American investors and financial institutions transacting with these businesses. Anyone investing in or transacting with companies listed on either country’s exchanges should also carefully consider the legal and financial risk those relationships may carry. In particular, investors and financial services providers should note that whether the proceeds of a cannabis-related business originate in Canada or the United States may determine whether criminal liability or compliance obligations under American law attaches to those proceeds. While the cannabis industry in Canada and elsewhere celebrates this landmark legislation, American companies investing in or providing financial services to cannabis-related businesses should take a fresh look at their compliance programs to ensure consistency with the most recent rules and guidance in this rapidly evolving space.

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Photo of Whitt Steineker Whitt Steineker

As co-chair of Bradley’s Cannabis Industry team, Whitt represents clients in a wide range of cannabis issues. In addition to providing a full suite of legal services to cannabis companies, Whitt and the Cannabis Industry team advise non-cannabis clients – from banks to…

As co-chair of Bradley’s Cannabis Industry team, Whitt represents clients in a wide range of cannabis issues. In addition to providing a full suite of legal services to cannabis companies, Whitt and the Cannabis Industry team advise non-cannabis clients – from banks to commercial real estate companies to insurance companies and high net worth individuals – on best practices for interacting with cannabis companies.

Whitt is one of the leading voices in the cannabis bar – recognized as a “Go-To Thought Leader” by the National Law Review. He has presented on cannabis issues at conferences around the country.  His work has been featured in the National Law JournalLaw360, and the Westlaw Journal. And he has been quoted in an array of legal and mainstream publications from Law360 and Super Lawyers to the Atlanta Journal-Constitution and the Associated Press.

Photo of James W. Wright Jr. James W. Wright Jr.

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved…

Jay Wright is a partner in the firm’s Banking and Financial Services and Litigation practice groups. Jay has earned his Accredited Mortgage Professional (AMP) designation through the Mortgage Bankers Association (MBA), and is one of a small number of lawyers who have achieved this status.

Jay’s practice focuses on financial services litigation and regulation, and he is actively involved in lawsuits and disputes across the country representing companies involved in a wide array of state and federal law claims. His representation includes general defense of various claims against financial institutions, mortgage companies, and other commercial entities. Many of these claims involve allegations of wrongful foreclosure proceedings or violations of the Truth in Lending Act (TILA), the Real Estate Settlement Procedures Act (RESPA), and Federal Housing Administration (FHA) regulations, as well as various deceptive trade practices claims under state law.

Photo of Riley McDaniel Riley McDaniel

Riley McDaniel is an associate in the firm’s Litigation Practice Group. Riley received his J.D. (with honors) from Emory University School of Law, where he was a managing editor of the Emory Law Journal. He was also an extern for…

Riley McDaniel is an associate in the firm’s Litigation Practice Group. Riley received his J.D. (with honors) from Emory University School of Law, where he was a managing editor of the Emory Law Journal. He was also an extern for the Hon. Richard W. Story of the U.S. District Court for the Northern District of Georgia. Riley graduated from Auburn University with a B.A. in Political Science (magna cum laude).