Canada: CSA Releases Results Of Review And Guidance For Reporting Issuers In Cannabis Industry

Last Updated: October 26 2018
Article by Alexander Lalka and Marco Maduri


The Canadian Securities Administrators (the "CSA") released Staff Notice 51-357 (the "Notice") on October 10, 2018. The guidance in the Notice was based on a review (the "Review") of 70 reporting issuers, in several different countries, operating with various levels of involvement in the cannabis industry ("Cannabis Issuers").

The CSA has provided guidance on disclosure practices for Cannabis Issuers so that investors have access to more transparent information about financial performance, risk, and uncertainties. The CSA was particularly concerned after the Review found:

  • insufficient information in the financial statements and management's discussion and analysis ("MD&A") of many licensed cannabis producers ("LPs");
  • a failure by some Cannabis Issuers to comply with securities requirements for forward-looking information and balanced disclosure; and
  • 74% of Cannabis Issuers that currently engage in, or are in the process of developing, marijuana-related activities in the U.S. ("U.S. Marijuana Issuers") failed to provide sufficient disclosure about the risks related to their U.S. operations. 1 These expectations were previously set out in CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities (the "U.S. Disclosure Expectations Notice"). 2

1. Financial Disclosure

Impact of Fair Value Accounting on Financial Statements Like other issuers with agricultural activities, LPs are required to measure living plants, or biological assets, at their fair value under International Financial Reporting Standards ("IFRS"). During the Review, the CSA observed that 71% of LPs did not properly disclose fair value amounts in their statement of profit and loss ("P&L"). Instead, many fair value adjustments were merely embedded in the cost of goods sold. The CSA found that, in the absence of additional line items on the P&L, investors were unable to understand how much LPs paid to produce their product (excluding all fair value amounts).

Therefore, the CSA has advised LPs to separately disclose both:

  • Unrealized gains/losses resulting from fair value changes on growth of biological assets; and
  • Realized fair value amounts included in the cost of inventory sold.

Disclosure of Accounting Policies Related to Biological Assets – The Review showed that most LPs had P&L line items called "production costs" or "cost of goods sold". However, LPs generally did not discuss the composition of those line items. The CSA stated the importance of investors being able to understand the costs included in the P&L. Going forward, LPs are expected to disclose:

  • what they consider to be the direct and indirect costs of production associated with biological assets;
  • which P&L line item(s) these direct and indirect costs are recorded in; and
  • whether the direct and indirect costs of biological assets are capitalized; or whether they are expensed as incurred.

Additionally, the CSA observed that many LPs who expensed costs as incurred (related to biological assets) have not been providing sufficient financial disclosure regarding the:

  • cost of cannabis sold in the period covered by the P&L;
  • composition of gross profit subtotals;
  • fair value measurement process (including, for example, techniques, processes, and sensitivity to change); and
  • disclosure regarding non-GAAP financial measures (such as "cash cost per gram").

2. Other Review Findings

The CSA also provided guidance on other issues identified during the Review:

Production Estimates – The CSA advised Cannabis Issuers making announcements about anticipated production capacity in new facilities to disclose the material factors and assumptions related to those projects. Similarly, Cannabis Issuers should base financial projections relating to these announcements on specific and comprehensive details, referencing how each assumption contributes to the projection. 3  

Misleading or Unbalanced Disclosure – The CSA advised issuers considering entering the cannabis industry, as well as existing Cannabis Issuers considering new investments in the cannabis industry, to ensure that announcements are balanced and not misleading. In many cases, issuers should enhance their disclosure by stating factors upon which a transaction is contingent (for example, regulatory approval).

Impairment – Issuers with material cannabis-related assets should perform appropriate impairment testing in response to impairment events. This could include industry-wide changes in cannabis valuations or regulatory frameworks.

Material Contracts Cannabis Issuers that are substantially dependent on licenses to cultivate or sell cannabis, or on leased facilities, should consider filing these as material contracts.

Regulatory Frameworks – Cannabis Issuers operating outside North America should provide disclosure about the foreign regulatory frameworks that are applicable to them. This would be similar to obligations on Cannabis Issuers with operations in Canada and the U.S.

3. Issuers with U.S. Marijuana-Related Activities

The U.S. Disclosure Expectations Notice provided specific disclosure guidance for U.S. Marijuana Issuers. The expectations included, but were not limited to:

  • a description of the nature of an issuer's involvement in the U.S. marijuana industry;
  • disclosure that marijuana is illegal under U.S. federal law and that enforcement of relevant laws is a significant risk;
  • related risks including, among others, the risk that third party service providers could suspend or withdraw services and the risk that regulatory bodies could impose certain restrictions on the issuer's ability to operate in the U.S.;
  • a discussion of the issuer's ability to access public and private capital, including which financing options are and are not available to support continuing operations;
  • a quantification of the issuer's balance sheet and operating statement exposure to U.S. marijuana-related activities; and
  • as further described in the U.S. Disclosure Expectations Notice, additional disclosures are expected depending on whether an issuer has direct, indirect or ancillary involvement with U.S. marijuana-related activities.

The Review noted that inadequate disclosure had been provided by most U.S. Marijuana Issuers. As a result of the review, 74% of U.S. Marijuana issuers took action to improve their disclosure and 17% were required to refile their most recent MD&A.


In many cases, deficiencies in disclosure identified during the Review were simply rectified with a commitment to prospective improvement. However, in cases where deficiencies were pervasive, the Notice states that many issuers were required to refile documents. Therefore, current and prospective Cannabis Issuers should review the Notice and ensure their practices are in line with CSA guidance.


1 Only where such activity is authorized by a state regulatory framework.

2 For more information regarding the U.S. Disclosure Expectations Notice, please see our previous communique: CSA Provides Clarification to Issuers with U.S. Marijuana-Related Activities

3 Issuers must also ensure that forward looking information is updated as required by Part 4A Forward-Looking Information and Section 5.8 Disclosure Relating to Previously Disclosed  Material Forward-Looking Information of National Instrument 51-102 Continuous Disclosure Obligations

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.

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

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

Alexander Lalka
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
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 (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

To Use 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.


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.


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