With the Cannabis Act (Bill C-45) set to be voted on by the Senate of Canada in two weeks (June 7, 2018) and legalization of marijuana expected in the coming months, Canada's largest cannabis company today became the first marijuana producer to be approved for listing on the New York Stock Exchange (NYSE). The listing on the NYSE of Canopy Growth Corporation, with a market capitalization of C$7.74 billion, represents another milestone as major Canadian investment dealers and U.S. stock exchanges are demonstrating a willingness to wade into the cannabis industry for the first time. In January/February, the Bank of Montreal (BMO) co-led Canopy's C$200 million bought deal public offering, the first time a major Canadian bank-owned dealer had accepted an engagement from an issuer with marijuana-related activities. Further transactions and listings on U.S. stock exchanges, including Cronos Group Inc.'s listing on NASDAQ earlier this year, suggest that issuers with marijuana-related activities are gaining broader acceptance as the cannabis industry matures.
Gowling WLG Focus
Transactions involving issuers with marijuana-related activities had, until recently, been avoided by Canada's major bank-owned investment dealers due to reputational perception, as well as the grey area surrounding the legality of cannabis in the U.S. where most Canadian banks have a significant presence. This appears to be changing with BMO's recent roles in 2018 financings and acquisitions as discussed below. While Canada's other "Big Five" banks (RBC, Scotia, TD, CIBC and National Bank) have not yet been active in cannabis transactions, the success of these financings and acquisitions, along with the anticipated legalization of marijuana in Canada in the coming months, may prompt a reassessment of their positions in the cannabis industry which has been dominated by independent investment dealers such as Canaccord Genuity Corp. and GMP Capital Inc.
Canopy's listing on the NYSE today also represents a potential new pathway for Canadian marijuana companies to access capital, particularly from U.S. institutional investors, and to establish a global market presence. Opportunities to access new sources of capital may be highly valuable to issuers given the anticipated industry consolidation.
Despite the potential opportunities in the cannabis industry, the regulatory landscapes in Canada and the U.S. are complex and have changed frequently in the past year. Although legalization is expected to occur in Canada in the second half of 2018, new regulations have not been released and it is unclear how Canadian securities regulators and stock exchanges may respond to the passage of final legislation.
Cannabis Industry Transactions and Stock Exchange Listings
BMO's engagement on a number of transactions involving large-cap cannabis companies in the past five months signals growing market acceptance of the cannabis industry. BMO co-led Canopy's C$200 million bought deal public offering in January/February, the first such foray into the cannabis industry by a major bank-owned dealer. While other major Canadian banks have not yet participated in the market, BMO appears to have recognized the investment potential in the industry, subsequently co-leading Cronos' C$100 million bought offering in March/April and advising on two potential acquisitions by Canadian issuers with marijuana-related activities. BMO is acting as financial adviser to Hiku Brands Company Ltd. in connection with its proposed C$288 million acquisition of WeedMD Inc. Most recently, Aurora Cannabis Inc. announced its proposed C$3.2 billion acquisition of MedReleaf Corp., a transaction which if completed, would establish Aurora Cannabis as the largest issuer with marijuana-related activities in Canada. BMO acted as advisor to Aurora Cannabis on the acquisition. BMO's entrance to the cannabis industry marks a shift in Canadian capital markets, and further opportunity for issuers with marijuana-related activities if Canada's other major bank-owned dealers begin to embrace the investment potential in the cannabis market.
Canopy's listing on the NYSE and Cronos' earlier listing on the NASDAQ represent the first listings by issuers with marijuana-related activities on the respective U.S. stock exchanges. Unlike issuers based in Canada, U.S.-based issuers are currently unable to list on U.S. exchanges, as discussed further below. Canopy and Cronos' successful cross-listings in the U.S. mark a significant industry development, providing Canadian issuers with easier access to capital from U.S. investors and promoting global development. Canopy has previously succeeded in attracting U.S. capital. In November 2017, the company closed a C$245 million equity investment by NYSE-listed Constellation Brands Inc., in exchange for common shares representing a 9.9% stake in Canopy and warrants permitting Constellation to double its interest. The investment also appears to have strategic value as the parties are expected to collaborate on a line of cannabis-infused beverages.
Canadian and U.S. Regulatory Developments
The Canadian federal Cannabis Act, Bill C-45, is currently being debated by committees of the Senate of Canada and is scheduled to come to the floor for a vote on or before June 7, 2018. The Government of Canada has maintained its position that marijuana will be legalized pursuant to the Cannabis Act in the second half of 2018, notwithstanding calls to delay its implementation.
Despite the existence of permissive regulatory regimes in many individual U.S. states, marijuana remains illegal under U.S. federal law as a Schedule I drug under the U.S. Controlled Substances Act. Accordingly, U.S. stock exchanges have prevented companies with U.S. marijuana-related operations from listing due to such illegality. In contrast, the Access to Cannabis for Medical Purposes Regulations (ACMPR), already provide a uniform set of regulations related to the production, sale or distribution of medical cannabis in Canada. The regulated nature of the cannabis industry in Canada, pursuant to the ACMPR, creates the opportunity for Canadian companies to list on stock exchanges in both Canada and the U.S.
In February 2018, Canadian securities regulators provided updated guidance to Canadian issuers with U.S. marijuana-related activities in response to the January rescission of the 2013 Cole Memorandum. The Cole Memorandum had deferred prosecution of marijuana-related offences where states had enacted "strong and effective" regulatory programs. Canadian securities regulators continue to support a disclosure-based approach to regulating Canadian issuers with U.S. marijuana-related activities, but have enhanced the disclosure required in offering documents, including prospectuses, listing statements and marketing materials, as well as continuous disclosure documents such as the annual information form and management's discussion and analysis.
The Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) have required issuers with U.S. marijuana-related activities to sell assets based in the U.S. in order to comply with minimum listing requirements. In contrast, the Canadian Securities Exchange (CSE) has not required listed companies to dispose of U.S.-based assets. In adopting a less restrictive regulatory approach than the TSX and TSXV, the CSE has become an attractive option for U.S. companies seeking access to the Canadian capital markets. MedMen Enterprises (MM Enterprises, USA, LLC), a $1 billion Los Angeles-based company operating dispensaries in a range of U.S. cities recently announced plans to complete a reverse takeover to list on the CSE, in order to gain access to Canadian capital markets.
With legalization of marijuana on the horizon in Canada, major Canadian financial institutions are likely to reassess the attendant risks of underwriting or advising on transactions involving Canadian issuers with marijuana-related activities, potentially creating new opportunities for partnerships. Issuers of varying scale may benefit from new pathways to access capital, both in Canada and abroad, including through cross-listing on U.S. exchanges.
Gowling WLG is monitoring financing trends and regulatory developments in Canada and the United States and is well-positioned to assist TSX, TSXV and CSE-listed issuers with meeting their ongoing disclosure obligations and potential cross-listing opportunities.
 Canopy Growth Corp., News Release, "Canopy Growth Corporation Completes Previously Announced Bought Deal Financing for $200 Million" (7 February 2018), online: <https://www.newswire.ca/news-releases/canopy-growth-corporation-completes-previously-announced-bought-deal-financing-for-200-million-673124803.html>.
 Cronos Group Inc., News Release, "Cronos Group Announces Closing of Previously Announced $100 Million Bought Deal" (6 April 2018), online: <https://www.newswire.ca/news-releases/cronos-group-announces-closing-of-previously-announced-100-million-bought-deal-678970293.html>.
 Doug Alexander, "Bank of Montreal muscles into marijuana M&A by advising Aurora in biggest deal yet", The National Post (14 May 2018), online: <http://business.financialpost.com/cannabis/bank-of-montreal-muscles-into-marijuana-ma-by-advising-aurora-in-biggest-deal-yet>.
 Aurora Cannabis Inc., News Release, "Aurora Cannabis to Acquire MedReleaf" (14 May 2018), online: <https://www.newswire.ca/news-releases/aurora-cannabis-to-acquire-medreleaf-682519231.html>.
 Jennifer Kaplan and Erik Schatzker, "Nasdaq to get first pot listing as Canada's Cronos Group joins exchange", The Globe and Mail (26 February 2018), online: <https://www.theglobeandmail.com/globe-investor/investment-ideas/nasdaq-to-get-first-pot-listing-as-cronos-group-joins-exchange/article38110213/>.
 Kristine Owram, "Canopy Growth applies to become first pot producer listed on the NYSE", The National Post (14 May 2018), online: <http://business.financialpost.com/cannabis/canopy-applies-to-become-first-pot-producer-listed-on-the-nyse>.
 Canopy Growth Corp., News Release, "Canopy Growth and Constellation finalize previously announced strategic transaction" (2 November 2017), online: <https://www.newswire.ca/news-releases/canopy-growth-and-constellation-finalize-previously-announced-strategic-transaction-654679453.html>.
 Senate of Canada, The Cannabis Act in the Senate (19 April 2018), online: <https://sencanada.ca/en/sencaplus/news/cannabis-act/>.
 Elise von Scheel, "Senate could sit into summer to pass marijuana bills", CBC News (11 May 2018), online: <http://www.cbc.ca/news/politics/senate-pot-legislation-summer-1.4659239>.
 Chloe Aiello, "Canadian marijuana company's Nasdaq listing bodes well for the industry, but US companies still face barriers", CNBC (6 March 2018), online: <https://www.cnbc.com/2018/03/02/canadian-cannabis-companys-nasdaq-listing-bodes-well-for-the-industry.html>.
 Ladera Ventures Corp., News Release, "Ladera Ventures Announces Proposed Reverse Takeover By MedMen Enterprises" (30 April 2018), online: <https://globenewswire.com/news-release/2018/04/30/1490232/0/en/Ladera-Ventures-Announces-Proposed-Reverse-Takeover-By-MedMen-Enterprises.html>.