Canada’s TMX Group Ltd., operator of the Toronto Stock Exchange, said on Monday that it might delist stocks of marijuana companies with interests in the United States, where their operations are illegal under federal law.
TMX disclosed its plans as Canadian securities regulators said companies must disclose any connection to the U.S. marijuana industry, which has grown as some states relax rules around cultivation and distribution.
The regulators did not prohibit marijuana firms with U.S. ties from listing in Canada, leaving room for any firms rejected by TMX to move to other exchanges.
TMX said it would begin a review of cannabis-related companies listed on its exchanges by the end of the year to determine whether their operations violate listing standards.
“There may be issuers on our markets that are not in compliance with our requirements,” Ungad Chadda, TMX’s head of capital formation for equity markets, told reporters at a briefing at the company’s headquarters.
While U.S. federal law prohibits marijuana, a memo issued by former U.S. Deputy Attorney General James Cole in 2013 directed federal prosecutors not to go after those that complied with state law.
Canada has a national, regulated medical marijuana industry and plans to legalize pot for recreational use by mid-2018.
About 25 companies listed on TMX exchanges cultivate, distribute and possess marijuana, while others provide services to the cannabis industry, Chadda said. He declined to say how many have U.S. exposure.
One company that may run afoul of the TMX review is Aphria Inc, which has a market capitalization of C$1.1 billion ($879 million) and has invested in companies operating in Florida and Arizona.
Aphria said it had no immediate comment.
TMX’s smaller rival, the Canadian Securities Exchange, has said it would welcome cannabis companies with U.S. interests and has already begun to recruit them.
Twelve of 50 marijuana-related companies listed with CSE have U.S. exposure, according to the exchange’s chief executive, Richard Carleton.
The new rules from securities regulators require marijuana companies to clearly describe their U.S. activities and explain any risks that could result from changes in U.S. federal enforcement, said Louis Morisset, chair of the Canadian Securities Administrators.