Canada: CSA Report On Medical Marijuana Issuer Finds Disappointing Disclosure Deficiencies

The Canadian Securities Administrators today released the results of CSA staff's review of continuous disclosure by reporting issuers announcing their intention to enter Canada's medical marijuana industry. Generally, CSA staff found that the reviewed issuers had unbalanced and promotional disclosure, and requested that 92% of the issuers reviewed file clarifying disclosure.

This review follows significant interest by reporting issuers and investors in the medial marijuana industry, with the CSA noting that a substantial number of issuers (a majority being in the junior mining industry) announced their intention to explore opportunities in the industry after the introduction of federal regulations effective April 1, 2014, to govern the production, distribution and use of medical marijuana in Canada.

Generally, CSA staff found that disclosure lacked clear discussion of: (i) the issuer's stage of entry into the medical marijuana industry; (ii) the time and financial resources required to effect the change in business; (iii) the medical marijuana licensing requirements of Health Canada; and (iv) approvals required by the board of directors or shareholders of the issuer or of the issuer's securities exchange.

Furthermore, the CSA found that disclosure also failed to acknowledge that: (i) issuers will not be able to grow or sell medical marijuana without a Health Canada license; (ii) a facility meeting the licensing requirements of Health Canada must be available for inspection by Health Canada before a license will be granted; and (iii) there is no assurance that any prospective project will be successfully initiated or completed.

Of particular interest, the report provided an example of deficient disclosure, along an enhanced example. The CSA encouraged issuers considering a change in their primary business, even those unrelated to the medical marijuana industry, to use the guidance as a tool to ensure factual and balanced disclosure in the announcement. For further information, see CSA Staff Notice 51-342.

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