Canadian securities regulators publish disclosure expectations for issuers with U.S. cannabis-related activities

Bernard Pinsky, Q.C.
Articles

The Canadian Securities Administrators (CSA) on February 8, 2018 published CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities, (the “Notice”) which sets out CSA staff’s disclosure expectations for specific risks facing issuers with cannabis-related activities in the U.S.
The revised notice includes additional disclosure expectations that apply to all issuers with U.S. cannabis-related activities, including those with direct and indirect involvement in the cultivation and distribution of marijuana, as well as issuers that provide goods and services to third parties involved in the U.S. cannabis industry. Issuers are expected to provide these disclosures in prospectus filings, marketing materials, news releases and other required documents, such as their Annual Information Form and Management’s Discussion and Analysis.
In the U.S. there is a conflict between state and federal law related to marijuana with certain U.S. states permitting its use and sale within a regulatory framework notwithstanding that marijuana continues to be listed as a controlled substance under U.S. federal law. The Notice’s guidance recognizes that the political and regulatory circumstances surrounding the treatment of U.S. cannabis-related activities are uncertain. In the event that U.S. federal law against marijuana is enforced, there could be material consequences for any issuer with U.S. cannabis-related activities, including prosecution and asset seizure.
In Canada, each stock exchange applies its own listing requirements as outlined in its rules, including rules related to compliance with applicable laws. Different exchanges may make their own judgements in the application of their listing requirements and an independent assessment of compliance and risk-analysis. Investors should be aware that even if an exchange lists a cannabis issuer with business in the U.S. that discloses the risks in accordance with the Notice, the listing does not change the treatment of the issuer’s cannabis related activities under U.S. federal law.
CDS will continue to clear the securities of issuers with U.S. marijuana-related activities.
If you have questions about an issuer that has cannabis related assets, contact any member of Clark Wilson’s Capital Markets, Securities, Mergers & Acquisitions Group.