Today 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.