Aphria shares fall even as it digs in heels to remain on TSX amid crackdown

TORONTO — Licensed marijuana producer Aphria Inc. dug in its heels Tuesday, determined to remain on the Toronto Stock Exchange despite a warning from the group that operates the index that pot firms with U.S. exposure could face delisting.

Shares of Aphria (TSX:APH), which expanded into Florida in April, closed 13 per cent lower on Tuesday at $6.86, a day after the TMX Group issued a notice that U.S. federal laws which state that marijuana is an illicit Schedule 1 controlled substance take precedence over state laws.

Canada’s biggest exchange operator warned companies that operate in states where it is legal that they are not complying with its listing requirements and could face removal from the exchange when it wraps a review at the end of the year.

Aphria’s chief executive Vic Neufeld, who has maintained that the TMX was aware of its plans to invest in the U.S., said Tuesday the exchange operator’s notice blindsided his company.

“This is very irresponsible of the TSX,” he said in an interview. 

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“How in the world are they going to adjudicate and apply a very broad statement like that?”

The news came as the Leamington, Ont.-based company started a previously arranged bought-deal financing agreement to raise $80 million, issuing more than 11 million shares at a price of $7.25 per share with an additional option for 1.6 million shares — about five per cent higher than what it was publicly trading for Tuesday.

Yet, Neufeld said he has no intention of moving to the smaller marijuana stock-friendly Canadian Securities Exchange even after the Canadian Securities Administrators on Monday issued guidance essentially gave the green light to allow it to continue to house cross-border marijuana companies as long as the listers disclosure certain risks when investing south of the border due to conflicting state and federal laws.

“It’s not our preferred option, obviously not. We want to stay on the big board,” Neufeld said. He added that he aims to start a dialogue with the TMX Group to find a “win-win” solution, and has no plans to walk away from their U.S. ambitions.

Neufeld said Tuesday that if it cannot reach a compromise with the TMX, there are some other options at its disposal, including a spin-off of its U.S. activities to be listed on the CSE.  

However, he viewed the TSX notice yesterday as a “door opener” to a conversation, with the hopes of a solution by the end of the year.

The duelling messages from the TMX Group and the CSA late Monday triggered a sector-wide selloff on Tuesday, with shares of Canopy Growth down as much as nine per cent, and Emblem Cannabis Corp. shares down as much as 16 per cent before bouncing back slightly later in the day.

However, the grey area creates an opportunity for the alternative CSE to ramp up its status as the main access point to Canadian capital markets for cannabis-based companies with U.S. interests.

CSE chief executive Richard Carleton said of the 50 or so cannabis-based businesses listed on their exchange, there are about a dozen with U.S. exposure that account for roughly 10 per cent of the trading activity.

“It’s quite likely that we’ll see more companies access Canadian public capital markets through us as a result,” he said in an interview Tuesday.

Meanwhile, Canopy Growth Corp. (TSX:WEED), Aphria’s main rival that does not have U.S. interests, 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.

Linton added that he believes 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.”

– with files from David Hodges in Toronto

Armina Ligaya, The Canadian Press