The Canadian Securities Administrators weigh in on disclosure by cannabis industry participants

The CSA has issued Staff Notice 51-357 Staff Review of Reporting Issuers in the Cannabis Industry, which identifies deficiencies in the disclosure practices of issuers involved in the rapidly growing cannabis industry. Among others, the CSA identified the following deficiencies in disclosure:

Insufficient disclosure in financial information filed by licensed cannabis producers

• Licensed cannabis producers often did not provide sufficient information in their financial statements and MD&A to allow an investor to truly understand the issuer’s financial performance. Issuers need to comply with IFRS requirements to record growing cannabis plants at their fair value. The CSA indicates that issuers need to improve their fair value and related disclosure.

Inconsistent compliance with forward-looking information (FLI) disclosure requirements

• Issuers are reminded to comply with securities requirements for FLI and guidance regarding the importance of providing balanced disclosure.

Insufficient disclosure regarding risks related to U.S. operations

• Issuers with cannabis operations in the U.S. should provide sufficient risk disclosure concerning their U.S. operations. Issuers are referred to the disclosure expectations set out in CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities.

Issuers who fail to satisfy disclosure requirements may be subject to enforcement action from the securities regulators. Some issuers that had disclosure deficiencies have been required to commit to prospective improvements in their disclosure or to refile disclosure to correct their deficiencies.

The author wishes to thank articling student Daniel Weiss for his help in preparing this legal update.