marijuana next to ATM, refinanceTORONTO/ ST. LOUIS (Reuters) – U.S. financiers in Canada’s clinical cannabis industry are wagering they won’t fall under the scrutiny of U.S. law enforcement officers – however it’s a high-risk bet.

With marijuana still prohibited on a federal level in the United States, American investors in Canadian medical cannabis can be seen as breaching the Controlled Substances Act, according to some U.S experts. And using the banking system to transfer the earnings of such investments might be viewed as money laundering.

The U.S. Medicine Enforcement Firm has actually already been tracking financial investments made in state-sanctioned marijuana company 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 kinds of activities.’

U. S. financiers have been progressively drawn to the raft of public listings by manufacturers that has sprung up because Canada upgraded its laws this year, making it legal to buy cannabis from licensed producers with a doctor’s prescription.

Canada’s medical cannabis market, which is expected to grow even more than tenfold, to C$ 1.3 billion, in a years, has actually matured more quickly than its peers. While U.S. financiers have numerous European markets where medical cannabis is legal on their radar – Canada has actually been the biggest beneficiary of fund streams from U.S. investors.

‘We truly like the Canada design, which is actually unlike other on the planet,” said Christian Groh, a co-founder of Seattle-based personal equity company Privateer Holdings, among the largest gamers in the medical cannabis sector. ‘What we’re doing here does not violate local, state and federal law (in Canada).’

Privateer produced a Canadian subsidiary as its grip in the market. Other financiers, however, have jumped straight in from their U.S. bases.

Timothy White, nationwide threat expert for Lender’s Tool kit Inc, a company that assists banks find and report money laundering, stated U.S. investors in Canadian cannabis firms might be breaching drug trafficking and cash laundering laws.

‘That is two violations of U.S. federal law. I do not see there is any means around that,’ White said.

A former DEA official who asked not to be named said that ‘at best,’ the financial investments are ‘a very reckless thing to do.’ Investors might face money laundering charges and any roi ‘would have the taint of medicine proceeds,’ the previous authorities said.

‘If they sought legal advice on this, they were grossly underserved,’ the former authorities said.

There have actually been no prosecutions by U.S. authorities of financiers in Canada, according to legal experts who have been carefully following the market.

Payne, the DEA spokesperson, said the U.S. firm has ‘limited investigatory resources’ to pursue financiers and is most thinking about targeting those with deep pockets who pour large amounts into the industry.

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  , credit solution

High Hopes

It’s a risk lots of U.S. investors, eyeing healthy returns, want to take. They are counting on shifting mindsets towards cannabis in the United States, and they see scant possibilities of prosecution under the Obama administration.

‘There are numerous business investing in the Canadian side, and this (money-laundering risk) is just not something that is coming up as a concern,’ stated one U.S. investor in the Canadian medical marijuana market who spoke on condition of anonymity.

‘You can buy pharmaceutical agents (whose drugs are not accepted) in the United States. This is simply another medicine.’

Canadian manufacturer OrganiGram Holdings Inc has actually nearly doubled in value considering that listing on Aug. 25. On the other hand, Bedrocan Marijuana Corp was the second-most actively traded stock on the TSX venture exchange on its market launching on the same day.

Roughly 30 percent of OrganiGram’s shares are held by U.S. financiers. Other producers likewise reported high levels of U.S. investment in their shares and capital raisings.

Toronto-based PharmaCan Capital, among the most active financiers in the Canadian market and likely to go public itself, stated it raised about 35 percent of its capital outside Canada.

So far, just relatively small U.S. financiers have actually been active in Canada’s marijuana sector. Deep-pocketed institutional financiers in the United States are yet to be swayed, partly due to the fact that of the legal risks and since the financial investments available are typically too small to interest them. Then there is the preconception related to the industry.

Canadian and U.S. investors also have to grapple with the threat of betting in a nascent, unproven market that is still finding its way. Securities regulators on both sides of the border have actually alerted financiers to remain clear of speculators.

‘The bigger institutions have a lot to lose and face a great deal of examination because of everything else they do,” stated Brian Vicente, a partner at Vicente Sederberg in Denver. ‘They are not thinking about taking that risk at this minute, which opens area and chances for smaller firms.’

Hopes that more U.S. states will certainly follow the lead of Washington and Colorado and approve ballot initiatives that make marijuana legal for adult use have enhanced the ranks of financiers looking at early stage marijuana-related agents. Twenty-three U.S. states have legalized medical marijuana.

‘Some financiers look at this and think, ‘I’m participating the ground floor. I’m going to be part of the next Facebook of marijuana, and timing is everything. … I can purchase in low and eventually offer super-high when legalization strikes,” stated Hilary Bricken, a lawyer at Seattle-based Harris Moure. ‘That day may never ever come.’