Canada’s largest stock exchange may delist marijuana stocks that run afoul of U.S. federal law which considers the drug illegal.

The Toronto Stock Exchange will contact all companies that cultivate, distribute or possess marijuana, or offer services related to the drug in any jurisdiction, by the end of the year. If they’re found to be in violation of U.S. federal law, they could ultimately be delisted, said Ungad Chadda, president of capital formation for equity capital markets at TMX Group Ltd., the parent company for bourses Toronto Stock Exchange and TSX Venture Exchange.

“There may be issuers on our market that are not in compliance with the requirements. We will only come to find that out through the process of our review,” Chadda said in a briefing with reporters at TMX’s offices in Toronto. “If you’re violating federal law, you’re out.”

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The move comes after the TMX Group Inc. announced it is reviewing how to deal with marijuana companies that have operations or investments in the U.S. While some U.S. states have legalized marijuana for medical and recreational use, it remains illegal at the federal level.

Chadda acknowledged that the exchange may have inadvertently allowed companies to list that were already violating U.S. federal law, or that began violating the law while they were listed. There are approximately 25 companies directly involved in the pot industry listed on the TSX and the TSX Venture Exchange, and an unknown number of other firms that indirectly do work for the sector.

Earlier Monday, Canadian securities regulators said they expect marijuana companies with business operations in the U.S. to disclose any risks in official documents. Canadian companies with interests in the U.S. “assume certain risks due to conflicting state and federal laws,” according to a statement Monday from the Canadian Securities Administrators, an umbrella organization for provincial and territorial regulators.

“We expect issuers with marijuana-related activities in the U.S. to address the current legal and regulatory environment in their disclosures,” said Louis Morisset, CSA chair and chief executive officer of the Autorité des marchés financiers.

U.S. federal law relating to marijuana could be enforced at any time, and this would put issuers with U.S. marijuana-related activities at risk of being prosecuted and having their assets seized, the CSA said.

“I think this really does clear the air in terms of what the expectations are for the companies, to basically disclose what those risks are to the public,” said Richard Carleton, chief executive officer of the Canadian Securities Exchange, which has about a dozen listed marijuana companies with U.S. exposure. “It’s the kind of clarity we’ve been looking for.”

The move will remove uncertainty for investors and is likely to spur more marijuana companies try to raise funds in the public market, Carleton said. The exchange is still in talks with Canadian regulators on settlement services for pot companies and “we’re confident of a positive outcome,” he said.

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