It was unclear how the Canadian Securities Administrators (“CSA”) would react to the rescission of the Cole Memorandum by Attorney General Jeff Sessions, we recently discussed, given that Canadian issuers with U.S. assets or operations rely on the regulatory framework created by each State based on the guidance and enforcement priorities set forth in the Cole Memorandum. Consistent with the CSA guidance from October 2017, the CSA continues the theme of a disclosure-based approach for issuers with U.S. marijuana assets or operations as discussed in CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities1 (“CSA Staff Notice”). The CSA recognizes that while marijuana remains listed as a controlled substance under U.S. federal law these businesses are operating legally within a state regulatory framework and the best way to deal with this conflict is through disclosure to the investor.
The continuation of this disclosure-based approach is also excellent news for those U.S. private companies currently seeking a go-public transaction in Canada through a reverse-take over or other means on the Canadian Securities Exchange. Any concern U.S. companies had regarding how the CSA was going to respond to the recission of the Cole Memorandum and the potential impact this may have had on a Canadian listing have been allayed for the moment. However the CSA specifically noted that companies entering the Canadian capital markets through such transaction would be required to comply with the CSA’s disclosure expectations in its listing statement.
The specific disclosure expectations outlined in the CSA Staff Notice are detailed below.
|Industry Involvement||Specific Disclosure Requirements|
|All Issuers with U.S. Marijuana Related Activities||
|U.S. Marijuana Issuers with direct involvement in cultivation or distribution||
|U.S. Marijuana Issuers with indirect involvement in cultivation or distribution||
|U.S. Marijuana Issuers with material ancillary involvement||
The CSA Staff Notice also made clear that the disclosure requirement is not static. The disclosure, and any related risks, should be continually evaluated, monitored and reassessed and updated and communicated to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding marijuana regulation.
Issuers that do not appropriately comply with the disclosure requirements may be subject to regulatory action.
If you are U.S. marijuana company interested in pursuing a public listing in Canada or learning more about the CSA Staff Notice and the impact it may have on your business please reach out to Daniel D. Nauth at 416-477-6031 or at firstname.lastname@example.org.
1 The CSA Staff Notice can be found here.