The Canadian Securities Administrators (CSA) has completed its review of the disclosure of 70 Canadian Cannabis industry registrants, CSA Staff Notice 51-357, Staff Review of Reporting Issuers in the Cannabis Industry (the Staff Notice).

Prior to the Cannabis Act, 2018 (the Act), which permits the recreational sale, production, and use of cannabis, only licensed cannabis producers (LPs) approved by Health Canada to grow medical cannabis were permitted. Since the Act came into force, the number of licensed producers has grown to 253 LPs, which includes both medicinal and recreational growers. As the cannabis market grew, many issuers and their directors and executive officers participated in the financing of other cannabis issuers, resulting in a higher than usual crossover of financial interests. These interests may include overlapping debt and equity, or other business relationships.

As a result of these concerns, the CSA has undertaken a survey of the reporting issuers in the cannabis industry and published the resultant Staff Notice to identify best practices so that investors are provided with transparent information about financial performance and to support informed investing decisions.

The Staff Notice identified key deficiencies in the disclosure of the 70 LPs it reviewed:
• 100% of the 70 LPs the CSA reviewed needed to improve their fair value and fair value-related disclosures. LPs often did not provide sufficient information in their financial statements and management’s discussion and analysis (MD&A) for an investor to understand their financial performance. International Financial Reporting Standards (IFRS) require issuers to record growing cannabis plants at their fair value;
• The CSA found that some of the issuers it surveyed did not consistently comply with securities requirements for forward-looking information, guidance for providing balanced disclosure and certain other requirements; and,
• 74% of issuers with cannabis operations in the U.S. that the regulator reviewed did not provide sufficient disclosure about the risks related to their U.S. operations to satisfy the disclosure expectations set out in CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities(the U.S. Disclosure Expectations Notice).

CSA Staff advise that they will be monitoring the situation closely on a going-forward basis and warn that issuers who do not meet expectations regarding disclosure will face additional regulatory action.

CSA Staff Notice 51-357, Staff Review of Reporting Issuers in the Cannabis Industry is available for download from the websites of the participating jurisdictions.

For more information, please call Barbara Hendrickson at BAX Securities Law (416) 601 -1004.

This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer. BAX does not warrant or guarantee the accuracy or currency or completeness of the publication. No part of this publication may be reproduced without the prior written permission of BAX Securities Law.