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Securities regulators affirm disclosure policy for pot companies with U.S. ties

TORONTO — Cannabis companies with U.S. ties received some long-awaited clarity from Canadian regulators and the country's major clearing house Thursday.
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TORONTO — Cannabis companies with U.S. ties received some long-awaited clarity from Canadian regulators and the country's major clearing house Thursday.

Canada's umbrella group for provincial and territorial securities administrators said that after a review of a U.S. clamp down on marijuana policies that cannabis companies with U.S. ties are compliant with regulations as long as they disclose specific risks when they invest south of the border — where issuers with marijuana-related activities in the U.S. assume certain risks due to conflicting state and federal laws.

"A disclosure-based approach remains appropriate in the current circumstances," CSA chair Louis Morisset said in a statement.

It also outlined additional disclosure expectations for companies with U.S. marijuana-related activities, including transparency about whether the company obtained legal advice about compliance with applicable American laws.

The update clarifies the regulatory landscape for investors, said Marc Lustig, CEO of CannaRoyalty, which has holdings in six U.S. states and Puerto Rico.

He called it "favourable" for issuers with American cannabis assets.

"Our view remains that the U.S. federal government does not intend to meaningfully alter the way that existing cannabis business is conducted within legal U.S. states and we applaud the disclosure-forward approach reiterated by the CSA today," he said.

Meanwhile, the country's equities and fixed income clearing house said it will not ban clearing securities of such issuers months after it was first reported the TMX Group Inc. owned subsidiary was contemplating such a move.

The Canadian Depository for Securities Ltd. signed a memorandum of understanding with four exchanges in Canada confirming that CDS relies on the exchanges to review the conduct of listed issuers. This means there is no ban on clearing securities of issuers with marijuana-related activities in the U.S.

The CDS, CSA and exchanges have been in discussions about how to handle these trades.

Last month, U.S. Attorney General Jeff Sessions rescinded an Obama-era memo that suggested the federal government would not intervene in states where cannabis is legal, leaving the door open for legalization in several states including California and Florida.

Instead, Sessions said he was leaving it to federal prosecutors in those states to decide how aggressively to enforce federal law.

His rescission prompted the umbrella organization for Canada's provincial and territorial securities regulators to take another look at its disclosure-based approach for issuers with U.S. marijuana-related activities, and whether it "remains appropriate.''

The Canadian Press