Cannabis companies in the US seeking to raise money have turned their attention to the Canadian public market, as the risk associated with the drug remains unaddressed.

Investors who have entered the cannabis space in Canada have seen a profusion of opportunities with new companies–and established ones–expanding their reach and product line into other markets. Across the border, though, lies additional opportunity with an added layer of risk.


The public cannabis market in the US has consisted of Canadian companies with listings on the OTC Markets as well as US-based companies making a push in various cannabis-related businesses, including operators of dispensaries and growing facilities, or companies offering their own cannabis-related products.

Besides OTC listings, the US-focused companies are able to raise money through another public exchange, the Canadian Securities Exchange (CSE). This network has been accepting companies operating in this space, in spite of the fuzzy legal issues.

However, besides the obtuse position of cannabis on a legal framework for investors, there have been companies that despite the promise, have left much to be desired, with some attempting to merely capitalize on the rush of money going into the business of marijuana.

Alan Brochstein is a cannabis analyst with 420 Investor who follows new ventures in the U.S. and the development of existing public companies closely. He told the Investing News Network (INN) he makes a distinction between the lower tier companies seeking public funds and the more established multi-state operators.

Brochstein explained he looks for the differences between focused companies working on their goals and new companies which can sometimes be “reincarnations” of older ones. He said he’s not sure investors often see the difference between these two types of companies.

Despite the foggy regulatory position for cannabis, investors have clamored for an opportunity in a larger market share thanks to states like California and Nevada which legalized both recreational and medical sales of cannabis.

“The Canadian public markets offer access to a lot of capital, with a lot of certainty and a lot of speed, and there is this appetite among global investors to invest in a U.S. play,” MedMen CEO and co-founder Adam Bierman told CNBC. “Specifically, global investors want to invest in a U.S. play that has California exposure. Now is the time where it makes the most sense.”

MedMen is an operator based in California seeking to go public on the CSE. At the Canaccord Genuity Cannabis Investor Day Conference in Vancouver on (January 12), the company made its plans known to the investor audience.

Opportunity in the CSE comes with risk disclosures for investors

In order to list with the CSE, the exchange requests that companies are upfront with the risk factor shareholders could face when investing.

That request was largely met by signaling the Cole Memo as the protection for valid cannabis enterprises. This line of defense was erased in early January of this year when U.S. Attorney General Jeff Sessions rescinded the memo. Sessions has been vocal about his stance against marijuana, famously saying “good people don’t some marijuana.”

In 2013, former Deputy Attorney General Jim Cole sent a guidance memorandum, the Cole Memo, allowing states to legalize the drugs if their voters approved it, and as long as local officials kept it regulated within their state. This memo allowed the entrance of companies to the public markets, as long as they operated in legal states.

After Sessions established his own memorandum, the CSE announced it would be seeking a new risk disclosure from companies it believed needed them.

Canadian Securities Exchange CEO Richard Carleton told Reuters they had reached out to 17 companies requesting public statements disclosing how the policy update from Sessions “could” impact their business.

“It seems to me the language has changed to ‘we’re relying on the principles of the Cole memo’ as opposed to the memo itself,” Brochstein told INN.

The list of companies the CSE contacted consisted of:

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Discussions circling marijuana legalitylegal-marijuana

Marijuana is an illegal substance classified as a schedule 1 drug, under the U.S. federal government. However, several states have worked to legalize the drug, either medically or recreationally and in some instances for both.

Thanks to Sessions’ update in policy, attorneys general all over the country can, if they chose to, enforce federal law when it comes to the cannabis companies. Despite this option, 18 attorneys general have joined forces in seeking Congress to enact policy that would allow companies to engage with U.S. banks.

Currently, the market is awaiting the agreement to keep the Rohrabacher-Blumenauer amendment. A policy protecting the marijuana industry by prohibiting the use of federal funds by the Department of Justice, to go after medical cannabis in the states where it has been declared legal.

“This is a wait and see type of moment and we really don’t know exactly how things are going to play out,” Brochstein said, since the continuation of Rohrabacher-Blumenauer depends on the pending budget policy.

Brochstein said the deadline is slated for February 9, but he has heard it could be pushed all the way to March. “They just keep, kicking the can. I rather them just kicking the can than to have a new budget that excludes Rohrabacher–Blumenauer,” Brochstein said.

Could the risk for investment in American cannabis be overblown?

When it comes to all the risk involved with the stocks on the CSE operating in the US, many advisors have, at times, dismissed these companies. This conversation surrounding these stocks was demonstrated at the Lift Cannabis Expo in Vancouver, as a panel of cannabis financial advisors said their attention was mostly on Canadian companies only–except for one panelist.

John Medland is a partner with Blair Franklin Capital Partners and acted as an outlier on his stance with cannabis stocks focused on the US market. During the panel, he said the risk associated with the US market is overblown.

“I think there is more opportunity for the CSE-listed companies than people sometimes give them credit for,” Medland told the audience. When asked why exactly he saw it this way, Medland later told INN he doesn’t see the worst case scenario becoming true for cannabis companies in the US.

“I think there is this grassroots movement from the states and the local government that the feds won’t want to push back on and also I don’t think it’s going to be popular politically,” Medland said.

Medland added the increase of companies operating in the US and seeking to list on the CSE could push for a resolution on the issue of clarity. However, he doesn’t expect market regulators to take a clear stance.

“[W]e could see some very large companies come north to list on the CSE and I think that may make the TSX uncomfortable and push the regulator to get more clarity,” Medland said.

Investor Takeaway

A risk is inherent with investments, but when it comes to the US cannabis market investors have to understand there’s an extra level of risk that comes from the unclear policy in the country. The unpredictability of the current administration makes it even harder for experts to predict the outcome of this case.

“I think the whole US cannabis market may not be accurately reflecting some of the risks in general,” Brochstein said when asked on the level of risk associated with investments in the US cannabis market.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Friday Night and High Hampton Holdings are clients of the Investing News Network. This article is not paid-for content.

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