Notice 2017-017 – Guidance – Disclosure Requirements for Issuers with Assets or Operations in the U.S. Cannabis Industry.
October 17, 2017
On August 4, 2017, the Canadian Securities Exchange (“CSE”) published Notice 2017-014 – Industry Guidance – Issuers with Assets or Operations in the U.S. Cannabis Industry (the “CSE Notice”). The purpose of the CSE Notice was to address the continuing uncertainty about obtaining a listing in Canada, and to remind listed companies and applicants that appropriate risk disclosure should include a comprehensive discussion of U.S. federal law and enforcement initiatives, as well as the state and municipal laws pursuant to which an issuer will conduct its business.
On October 16, 2017 the Canadian Securities Administrators published CSA Staff Notice 51-352 Issuers with U.S. Marijuana-Related Activities (the “Staff Notice”). The purpose of the Staff Notice is to provide “CSA staff’s specific disclosure expectations for issuers that currently have, or are in the process of developing, marijuana-related activities in U.S. states…”
The Staff Notice includes a table that outlines, based on the type of industry involvement, the specific disclosure expectations for prospectus filings and other required documents such as the AIF, MD&A and Listing Statements. Furthermore, the disclosure and risks should be evaluated, monitored and reassessed by issuers on an ongoing basis. The CSE is fully supportive of this disclosure-based approach, and provides additional references in this notice to assist issuers in applying the guidance provided in the Staff Notice.
The Listing Statement should include the specific disclosure for the type(s) of industry involvement described in the Staff Notice. It should also include a description of specific policies or procedures, if any, the issuer will implement to reassess the risks, and the relevance and adequacy of existing disclosure.
The general instructions for the CSE Form 2A Listing Statement provide that “the sequence of questions must not be altered nor should questions be omitted or left unanswered. The answers…must be in narrative form.” Using the Form 2A as a template ensures that all disclosure items are addressed, and an investor can more easily determine if any disclosure has been omitted.
In addition to the risk disclosure provided in section 17, question 3.3 specifically requires a discussion of “…any trend, commitment, event or uncertainty that is both presently known to management and reasonably expected to have a material effect on the Issuer’s business, financial condition or results of operations, providing forward-looking information based on the Issuer’s expectations as of the date of the Listing Statement.” A Listing Statement for an Issuer that has assets or operations in the U.S. cannabis industry should include detailed disclosure as outlined in the Staff Notice.
CSE Policy 5 Timely Disclosure, Trading Halts and Posting Requirements reminds issuers, in section 2.2, “Listed Issuers are not required to interpret the impact of external political, economic and social developments on their affairs, but if the external development will have or has had a direct effect on their business and affairs that is both material and uncharacteristic of the effect generally experiences as a result of such development by other companies engaged in the same business or industry, Listed Issuers are urged, where practical, to explain the particular impact on them. For example, a change in government policy that affects most companies in a particular industry does not require an announcement, but if it affects only one or a few companies in a material way, an announcement should be made.”
Notwithstanding the broad implications of a change in U.S. federal policy, the impact to each issuer could be significantly different from others in the industry, depending on specific business activities and jurisdiction of operation. Issuers must consider if a reasonable investor’s decision may be affected by information concerning its business and affairs. If a Listed Issuer were to determine that certain developments did not necessitate a news release under the Timely Disclosure requirements, disclosure may still be appropriate in the CSE Form 7 Monthly Progress report. Form 7, question 17 requires the issuer to “Discuss any trends which are likely to impact the Issuer including trends in the Issuer’s market(s) or political/regulatory trends.”
Acquisitions and Transactions
A Listed Issuer proposing an acquisition or transaction that will result in the issuer conducting, or holding an interest in an entity conducting cannabis-related activities in the U.S. must include appropriate disclosure with the announcement of the proposed transaction, including discussion of the risks in relation to the proportion of business the acquisition will represent to the issuer. For a transaction that results in a fundamental change pursuant to CSE Policies, additional disclosure will be required in the Listing Statement filed for the fundamental change. Otherwise, the required disclosure should appear in the next Monthly Progress Report, MD&A and Annually Updated Listings Statement or AIF as applicable.
Please refer questions about the CSA Staff Notice to any of the CSA contacts listed.
For questions about CSE policies or the content of this CSE Notice, please contact:
Listings@thecse.com, or 416-367-7340.
Mark Faulkner, Vice President Listings & Regulation