CSA Provides Guidance on Public M&A Transaction Disclosure

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On November 12, 2019, the Canadian Securities Administrators (“CSA”) provided guidance on disclosure for reporting issuers doing merger and acquisition (“M&A”) transactions in the cannabis and other emerging growth industries.

The CSA has found that many emerging growth issuers and their directors and officers have participated in the financings of other similar issuers. This participation has resulted in a higher than usual cross-ownership of financial interests amongst cannabis and other issuers and their directors and officers. These financial interests may include overlapping debt and equity interests, or other business relationships. The CSA states that the cross-ownership of financial interests results in conflicts of interest that may lead investors to re-examine other variables such as purchase price, transaction timing or contingent payments. These variables may not otherwise be considered in the same manner if the conflict of interest is not disclosed. Non-disclosure of the cross-ownership of financial interests may also cause investors to question whether the M&A transaction occurred on its own merits.

The CSA considers that regardless of the form of disclosure document used, issuers must disclose the cross-ownership of financial interests as material to the transaction. The CSA also states that personal or business relationships with other directors and officers of the issuer must be considered in the determination of a director’s independence. Directors must not have a direct or indirect ‘material relationship’ with the issuer in order to be independent.

The M&A Disclosure guidance can be found here.