Canada: Canadian Securities Administrators mandate additional disclosure in response to Sessions Memo

Last Updated: February 13 2018
Article by Kris Miks, Eric Foster and Andreas Kloppenborg

On February 8, 2018, the Canadian Securities Administrators (the CSA) published revised CSA Staff Notice 51-352 - Issuers with US Marijuana-Related Activities (the Notice), which sets out the CSA staff's disclosure expectations for specific risks facing issuers carrying on marijuana-related activities in US states where such activities are authorized under regulatory frameworks in such states (US Cannabis Issuers).

As detailed in our October 17, 2017 Insight, the CSA previously acknowledged that US Cannabis Issuers face unique regulatory risks based on the conflict between state and federal laws in the US. The CSA imposed specific disclosure obligations to educate investors and the capital markets with respect to such risks.

In a memorandum issued on January 4, 2018, United States Attorney General Jeff Sessions increased that conflict with the reversal of a President Obama-era policy that the United States Department of Justice (DOJ) would not devote resources to the prosecution of persons acting in compliance with state cannabis laws. Most notably, Attorney General Sessions' memorandum (the Sessions Memo) rescinded the 2013 guidelines issued by Deputy Attorney General James Cole, commonly known as the Cole Memo, which stated that, while the DOJ is committed to enforcing the United States Controlled Substances Act, it is also committed to focusing its limited investigative and prosecutorial resources on more significant threats in the most effective, consistent, and rational way. The Cole Memo enumerated certain enforcement priorities related to cannabis that remained important to the federal government, including the distribution of marijuana to children, revenue from the sale of marijuana going to criminals, and the diversion of marijuana from states where it is legal to states where it is not. For further information regarding the Sessions Memo see the Dentons Insight dated January 12, 2018.

Following the release of the Sessions Memo, the regulatory framework applicable to US Cannabis Issuers became uncertain. The CSA released a statement on January 12, 2018 (the CSA Release) advising that the CSA was considering whether its disclosure-based approach for US Cannabis Issuers remained appropriate in light of the rescission of the Cole Memo. The CSA Release noted that the CSA would communicate more details about its position "shortly", but provided no indication of a timeframe. The lack of guidance and the confirmation in the CSA Release that issuers with no US marijuana-related activities and that otherwise operate in compliance with applicable Canadian laws "are not the focus" created increased uncertainty for US Cannabis Issuers seeking to access the Canadian capital markets.

The Notice constitutes the guidance promised by the CSA Release and alleviates certain concerns faced by the Canadian capital markets participants. Rather than restricting US Cannabis Issuers' access to the Canadian capital markets, the Notice imposes additional disclosure requirements that apply to such issuers, including those with direct and indirect involvement in the cultivation and distribution of marijuana and those that provide goods and services to third parties involved in the US marijuana industry. The mandated disclosure is required to be included in prospectus filings and other disclosure documents, such as an issuer's annual information form and management's discussion and analysis. Among other things, the Notice requires that US Cannabis Issuers:

1. prominently state that marijuana is illegal under US federal law and that enforcement of relevant laws is a significant risk;

2. outline related risks, including the risk that third party service providers could suspend or withdraw services and that regulatory bodies could impose certain restrictions on the issuer's ability to operate in the US;

3. quantify exposure to US marijuana-related activities on the issuer's balance sheet and operating statement; and

4. disclose if legal advice has not been obtained, either in the form of a legal opinion or otherwise, regarding: (a) compliance with applicable state regulatory frameworks; and (b) potential exposure and implications arising from US federal law.

In addition to the foregoing, US Cannabis Issuers with direct involvement in cultivation or distribution of marijuana must also: (a) outline the regulations for US states in which the issuer's investee(s) operate; and (b) discuss the issuer's program for monitoring compliance with US state law on an ongoing basis, outline internal compliance procedures and provide a positive statement as to its compliance with US state law.

US Cannabis Issuers with indirect involvement in cultivation or distribution of marijuana must: (a) outline the regulations for US states in which the issuer's investee(s) operate; and (b) provide reasonable assurance, through either positive or negative statement, that the investee's business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable US state and promptly disclose any non-compliance, citations or notices of violation, of which the issuer is aware, that may have an impact on the investee's licence, business activities or operations.

Rather than prohibiting US Cannabis Issuers from participating in the Canadian capital markets, the Notice reaffirms the CSA's "disclosure-based" approach to regulation and broadens the scope of the disclosure required of US Cannabis Issuers in an effort ensure that investors and market participants are educated in respect of the risks associated with US Cannabis Issuers.

Dentons' analysis

In light of the Sessions Memo and the CSA Release, the guidance provided by the CSA in the Notice is instrumental to reassure the Canadian market by providing comfort to both investors and US Cannabis Issuers that US Cannabis Issuers will not automatically be cease traded as a result of US operations. The Notice confirms that as long as US Cannabis Issuers comply with the mandatory disclosure prescribed by the Notice, they will continue to be eligible to access and participate in the Canadian capital markets and alleviates the concern of a potential prohibition that arose in light of the CSA Release.

As with the previously required disclosure, going forward, we expect that much of the disclosure required to be made by US Cannabis Issuers will become standardized as the CSA framework becomes increasingly well-established in the Canadian market. In addition, the guidance provided by the CSA will hopefully provide comfort to new market participants and institutional investors, allowing them to participate in an industry that has historically been a retail space.

Notwithstanding the foregoing, US Cannabis Issuers will need to be cognizant of the increased disclosure obligations and the risks of non-disclosure and ensure that they are fully apprised of the legal framework in the US states in which they operate and are properly communicating the level of risk that investors may face to their shareholders and the market generally.

In addition, a number of third party service providers have begun to impose restrictions on issuers seeking to utilize their services, including covenants not to participate in the cannabis industry in the United States. As a result, US Cannabis Issuers will need to carefully consider the reactions of, and resulting requirements imposed by, third party service providers, including transfer agents, depositories and financial institutions, as a result of the Sessions Memo.

For more information, visit our Canadian Securities Litigation blog at www.canadiansecuritieslitigation.com/

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
23 Oct 2018, Other, Toronto, Canada

Dentons and SheEO are coming together for an evening of #radicalgenerosity on October 23, 2017. Meet Vicki Saunders, Founder of SheEO, and learn about how SheEO is changing the landscape for female entrepreneurs.

23 Oct 2018, Seminar, Montreal, Canada

Dentons is pleased to invite you to join us for a breakfast seminar as part of the Les Matinées Dentons series on issues relevant to you and your business.

24 Oct 2018, Other, Toronto, Canada

If you build it, claims may come. Join the Dentons Construction group for breakfast and an informative discussion on current topics in construction law.

 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions