Exclusive: U.S. DEA 'most interested' in U.S. investors in Canadian marijuana firms

Fri Oct 10, 2014 10:41am EDT
 
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By John Tilak and Brett Wolf

TORONTO/ST. LOUIS (Reuters) - U.S. investors in Canada's medical marijuana industry are betting they will not fall under the scrutiny of U.S. law enforcement officers - but it is a risky bet.

With marijuana still illegal on a federal level in the United States, American investors in Canadian medical marijuana can be seen as violating the Controlled Substances Act, according to some U.S experts. And the use of the banking system to transfer the proceeds of such investments could be seen as money laundering.

The U.S. Drug Enforcement Administration has already been tracking investments made in state-sanctioned marijuana business in the United States. When asked by Reuters about the DEA's view of U.S. investments in Canadian marijuana, DEA spokesman Rusty Payne said the agency is "most interested in those types of activities."

After the Reuters report, shares in Canadian medical marijuana companies fell sharply at the open before recovering some ground. OrganiGram Holdings Inc (OGI.V: Quote) dropped 6.9 percent in early trading, Bedrocan Cannabis Corp BED.V fell 4.2 percent and Tweed Marijuana Inc TWD.V declined 2.8 percent.

U.S. investors have been increasingly drawn to the raft of public listings by producers that has sprung up since Canada overhauled its laws this year, making it legal to buy marijuana from licensed producers with a doctor’s prescription.

Canada's medical marijuana market, which is expected to grow more than tenfold, to C$1.3 billion, in a decade, has matured more rapidly than its peers. While U.S. investors have several European markets where medical marijuana is legal on their radar - Canada has been the biggest beneficiary of fund flows from U.S. investors.

"We really like the Canada model, which is really unlike any other in the world,” said Christian Groh, a co-founder of Seattle-based private equity firm Privateer Holdings, one of the largest players in the medical marijuana sector. "What we're doing here does not violate local, state and federal law (in Canada)."

Privateer created a Canadian subsidiary as its foothold in the market. Other investors, however, have jumped straight in from their U.S. bases.   Continued...

 
Section Grower Morgan Blenk inspects a marijuana plant clone before planting it at Tweed Marijuana Inc in Smith's Falls, Ontario, in this file photo from March 19, 2014.  REUTERS/Blair Gable/Files