By: Andrew Elbaz and Student-at-Law, Alexander Katznelson

Yesterday, the Canadian Securities Administrators published its CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities to provide further guidance on disclosure expectations for issuers with US marijuana-related activities.

The revised disclosure policy applies to all Issuers including those with both direct and indirect involvement in marijuana cultivation or distribution and to Issuers that provide goods and/or services to third parties that are directly involved in the U.S. marijuana industry.

The revised disclosure-based approach provides the following enhanced disclosure obligations on all Issuers. All Issuers must:

• describe the nature of their involvement in the U.S. marijuana industry;
• clearly state that marijuana is illegal under U.S. federal law and that the enforcement of federal laws poses a substantial risk;
• discuss any statements and/or guidance made by prosecutors or federal authorities concerning the risk of enforcement of federal laws in the jurisdiction where they conduct their activities;
• highlight all risks which could affect their U.S. related activities;
• detail what financing options they have available to them;
• identify the exposure of their U.S. related activities in their balance sheet and operating statement;
• disclose whether they have obtained legal advice on their compliance with state regulatory frameworks and any exposure and/or implications arising from U.S. federal law; and
• confirm their, and where required, their investee’s and/or customer’s compliance with state regulations and licensing requirements.

In addition to the foregoing, the following disclosures must be provided based on the Issuer’s involvement in the U.S. marijuana industry:

• where the Issuer has a direct involvement in cultivation or distribution, they must disclose how they comply with and monitor their compliance of state regulations and licensing requirements, and what procedures they put in place to ensure the same; and
• where the Issuer is indirectly involved in cultivation or distribution, they must highlight the state regulations in which the Issuer is involved.

Issuers must follow the revised disclosure policy in all prospectus filings and in all other filings as required under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102).

Additionally, in noting that the regulatory circumstances concerning U.S. marijuana activities are uncertain, the CSA stressed the importance of issuers considering all legal and/or regulatory changes with respect to determining if they trigger the obligation to file a disclosure of a material change.

The CSA is continuing to monitor legal and/or regulatory changes in the U.S. marijuana market.

The specific disclosure obligations set out in the revised disclosure policy can be viewed as a PDF here at http://www.osc.gov.on.ca/en/SecuritiesLaw_csa_20180208_51-352_marijuana-related-activities.htm.