Canopy Growth Corp.’s plans to consolidate its U.S. investments into a separate, U.S.-domiciled company may face objections from the Nasdaq, but it has received the greenlight from the Toronto Stock Exchange. 

TMX Group Inc. Chief Executive Officer John McKenzie told BNN Bloomberg that Canopy’s announcement that it will create a new holding company called Canopy USA LLC to formally acquire three U.S.-based cannabis companies runs onside with the TSX’s regulations, following discussions between the two organizations. 

“Canopy is a great issuer and worked with us directly on what they want to do structurally in the U.S.,” McKenzie said. “That’s something that we were able to get to with them and it’s a model that can be used with other Canadian issuers that want to have those same opportunities.”

Canopy Growth said Monday that its Canopy USA venture will be able to acquire Acreage Holdings Inc., Jetty Extracts, and Wana Brands following a shareholder vote to approve the new holding company, as well as a new class of share structure that would avoid running afoul of the federal prohibition of cannabis in the U.S. 

As cannabis remains federally illegal in the U.S., Canopy was unable to formally buy those companies due to restrictions imposed by the TSX and U.S.-based exchanges and instead had options to acquire them once a triggering event tied to the legalization of cannabis would occur. Following Canopy’s announcement, the company’s shares enjoyed their biggest one-day jump since 2018. 

However, questions remain as to whether the deal would impact Canopy’s U.S.-listed shares on the Nasdaq. In a preliminary proxy statement filed shortly after the announcement, Canopy disclosed that Nasdaq objected to Canopy consolidating the financial results of its Canopy USA venture into its parent company. 

“Nasdaq has proposed that such consolidation is impermissible under Nasdaq’s general policies,” Canopy said in the proxy statement. “The company intends to comply with the SEC’s guidance on the application of U.S. GAAP for financial reporting purposes. The Company disagrees with Nasdaq’s potential application of its general policies as the basis for its objection since it contradicts the Company’s financial reporting requirements under U.S. GAAP including its application to THC plant touching businesses.”

A Nasdaq spokesperson declined to comment on Canopy’s plans.

Following Canopy’s filing, several analysts questioned whether Canopy would be allowed to go through with its U.S. plans or that it might have to delist from U.S. exchanges until clarity on cannabis legalization is made. 

“We believe that this means Canopy must either give up on this deal or be de-listed from Nasdaq,” said Michael Lavery, an analyst with Piper Sandler, in a report to clients Wednesday. “We continue to believe the company remains comfortable with the risk of de-listing, though we believe the risk of this action could be very material capital outflows.”

A Canopy spokesperson told BNN Bloomberg in an email that it's Canopy USA is a “novel structure” that will help the company capitalize on the U.S. cannabis market opportunity. 

“It’s our job to show the value and the rationale here, and we will continue our ongoing dialogue with Nasdaq to support our compliance with their rules and regulations as we pursue this ground-breaking strategy," the spokesperson said. 

Meanwhile, possible legislative changes to how cannabis companies can engage with federally regulated banks may allow U.S.-based pot producers that are listed on the Canadian Securities Exchange to up-list to the TSX, McKenzie said. 

“Changes to legislation in the U.S. that would actually take those off the Schedule 1 list and assuming all the other legislation that goes with it, like anti-money laundering and things like that which would allow us to list these companies, I think would be very positive,” he said.