Understanding Disclosure Expectations for Marijuana Companies

Understanding Disclosure Expectations for Marijuana Companies

On February 8, 2018, the CSA revised its disclosure expectations for specific risks facing issuers with marijuana-related activities in the United States. Learn more on the BCSC’s public website.

On October 16, Canadian securities regulators outlined specific disclosure expectations for public companies that have, or are in the process of developing, marijuana-related activities in the United States.

Investors should read the disclosure of companies they invest in to find out more about their activities. In this blog post, we highlight areas where  investors can find some of this information.

What are Disclosure Requirements?

Public companies must regularly make certain information available to investors, including details about risks and uncertainties associated with their operations. This information is disclosed in documents such as an issuer’s Annual Information Form (AIF), its Management’s Discussion and Analysis (MD&A) and news releases. These types of continuous disclosure documents and are filed on the System for Electronic Document Analysis and Retrieval (SEDAR) website.

The Know Your Investments section shows investors where to find information about public company disclosures.

Disclosure Expectations for Issuers with U.S. Marijuana-related Activities

Public companies with marijuana-related activities in the U.S. assume certain risks due to conflicting state and federal laws. While some U.S. states have authorized the use and sale of marijuana, it remains illegal under U.S. federal law.

In 2013, the U.S. Department of Justice issued guidance stating that it will generally focus enforcement on conduct that interferes with certain federal priorities relating to marijuana. The guidance further outlines that prosecutors and law enforcement will be less likely to interfere with U.S. states that have a strong and effective regulatory program for marijuana. Many issuers rely on this guidance when carrying on business in U.S. states that have legalized marijuana.

However, this guidance could be revoked or changed by a new federal government policy pronouncement. Such action would put certain public companies at risk of being prosecuted and/or having their assets seized.

CSA staff expect all issuers with marijuana-related activities in the U.S. to include in their continuous disclosure documents information about compliance with state regulatory frameworks and discuss the risk of enforcement under U.S. federal laws relating to marijuana. CSA staff have also outlined additional specific disclosure expectations based on the nature of an company’s involvement in the U.S. marijuana industry.

What do Stock Exchanges Require of Listed Companies?

In determining whether to list public companies with U.S. marijuana-related activities, each exchange applies its own listing requirements. These requirements are outlined in an exchange’s rules, which include rules related to an issuer’s compliance with applicable laws.

Different exchanges may make their own judgements in the application of their listing requirements and an independent assessment of compliance and risk-analysis. As a result, some exchanges may decide to list issuers with U.S. marijuana-related activities, while others may decide to reject listing applications from these companies.

More Information on Disclosure Requirements for Marijuana Issuers

Read this news release for more information on the Canadian Securities Administrators’ disclosure expectations for companies with U.S. marijuana-related activities.