Aphria stands by U.S. assets in changing regulatory environment

Licensed marijuana producer Aphria Inc. says it stands by its decision to invest south of the border, despite a recent U.S. cannabis crackdown and a warning from Canada’s biggest exchange operator that cross-border pot firms could face a delisting.

The comment from Aphria’s CEO Vic Neufeld comes less than a week after U.S. Attorney General Jeff Sessions rescinded an Obama-era memo that suggested that the federal government would not intervene in states where the drug is legal. This guidance, known as the Cole Memorandum, opened the door for several states to legalize the drug for medicinal and recreational use, but marijuana remains illegal under federal law.

Neufeld’s comments also come as the TMX Group, which operates the Toronto Stock Exchange and the TSX Venture, reviews cannabis firms’ cross-border activities, after warning in October that federal law takes precedence over state laws, and that violators may face delisting.

That raised questions about Aphria, one of the biggest Canadian producers with U.S. investments.

“In terms of Aphria’s U.S. assets, I would like to convey the message that we have no delisting request whatsoever from any regulator,” Neufeld told analysts on a call to discuss its second-quarter earnings Wednesday. “And we remain on a path that will be receptive to the regulators, while at the same time, provide proper value to our shareholders.”

Neufeld said in December the pot producer was in dialogue with the TMX Group and it was moving to reduce, where possible, any direct involvement in medical cannabis in the U.S., including by moving assets under subsidiary companies.

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Its Florida business already operates under the subsidiary Liberty Health Sciences, which it launched to acquire and operate U.S.-based companies in the medical cannabis market and the company has said it is looking to do the same for its Arizona-licensed producer, Copperstate Farms.

At the same time the TMX announced its strict policy, the umbrella organization for Canada’s provincial and territorial securities regulators said that cannabis companies with U.S. operations were clear to list in Canada as long as they disclosed risks to investors. The Canadian Securities Administrators said this week it is “examining the recent recission of the Cole Memorandum.”

“Given the critical importance of the legal and regulatory environment to issuers operating in this industry, we expect issuers to carefully consider whether this development results in material changes that trigger timely disclosure obligations,” CSA said in an emailed statement.

In Sessions’ Jan. 4 memo, President Donald Trump’s top law enforcement official said he is leaving it to federal prosecutors where marijuana is legal to decide how aggressively to enforce federal law.

The new enforcement stance in the U.S. triggered a broad sell-off in pot stocks, which have been on an tear in recent months as Canada moves to legalize the recreational use of cannabis by this summer.

Aphria’s stock slipped 13.8% on the news to close at $18.50 last Thursday. Shares were trading at roughly $23 in Toronto on Wednesday, after Aphria reported $6.45 million in net income for the fiscal second quarter, up from $945,000 in the same period a year earlier.

The Leamington, Ont.-based producer saw revenues rise 39% to roughly $8.5 million and the amount of product sold rise 45% to 1,237 kilograms.

However, Aphria’s overall costs to produce dried cannabis also rose roughly 32% “temporarily” to $2.13 per gram as a longer-than-expected expansion approval resulted in a smaller yield, meaning overall costs were distributed across a smaller harvest.