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Oct 17, 2017

​Marijuana producer Aphria inks deal to raise $80M, shares fall after TSX notice

Marijuana

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TORONTO — Licensed marijuana producer stocks are down as much as 15 per cent in a sector-wide selloff a day after the Toronto Stock Exchange said firms with cannabis-related business activities that violate U.S. federal law could face delisting.

Shares in Aphria Inc. (APH.TO), which expanded into Florida in April, fell as much as 13 per cent on Tuesday as the company announced a bought-deal financing agreement to raise $80 million, by issuing more than 11 million shares at a price of $7.25 per share. Shares in the company were down 94 cents at $6.98 in trading on the Toronto Stock Exchange.

Meanwhile, Emblem Cannabis' (EMC.V) shares fell as much as 15 per cent and Maple Leaf Green World Inc. (MGW.V) saw its shares slip by as much as 10 per cent. Shares of Canopy Growth (WEED.TO), Canada's biggest licensed marijuana producer, fell as much as eight per cent, on the TSX.

On Monday, the TSX issued a staff notice that said U.S. federal law takes precedence over state laws, and issuers that violate the federal marijuana law are not complying with listing requirements.

Aphria said the TSX notice was "extremely broad" and that it was difficult to determine what, if any, impact it could have on its business.

"The objective application of such staff notice by the TSX to any entity engaging in activities related to the cultivation, distribution or possession of marijuana in the U.S. or entities engaging in ancillary services activities may prove to be challenging in determining actual compliance with such guidance," the company said in a statement Tuesday.

However, it noted that marijuana is medically legal in 31 states and territories and that the U.S. Congress has prohibited the U.S. Department of Justice from using federal funds to carry out criminal or civil actions against state licensed medical cannabis operators.

The TSX clarification had been anticipated by marijuana companies looking to get a foothold in the U.S. market as well as U.S. companies that want to access capital on Canadian markets.

Aphria, which is listed on the TSX, announced an investment in Florida in April of this year.

The company said its common shares have traded on the TSX and previously the TSX Venture Exchange for almost three years during which time it has raised over $216 million. The company added that it has had marijuana-related activities in the U.S. since 2015.

Meanwhile, Canopy said that the TSX staff notice would have no impact on its operations and praised the move, calling it a step in the right direction.

"We take our responsibility to our shareholders seriously and as such have chosen to conduct business in jurisdictions where it is federally legal to do so," Canopy chairman and chief executive Bruce Linton said.

The Canadian Securities Administrators, the umbrella organization for Canada's provincial and territorial securities regulators, appeared to take a much more lax approach, putting out a notice late Monday outlining its expectations for marijuana-based companies with U.S. exposure.

It said companies must tell investors about certain 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.

Linton said it was "incomprehensible" that a private business — namely the TMX, which operates the TSX and the Venture Exchange —  is "actually acting as the regulator."

Meanwhile, Linton added, the CSA's stance that companies can violate U.S. federal laws regarding marijuana provided that they simply disclose it is "completely ludicrous and no person in Canada would think that's practical or logical."