CSA Issues Guidance on Corporate Governance Related Disclosure Expectations for Cannabis Issuers
Updated: Jan 21
Staff for the securities regulators in each of British Columbia, Ontario, Québec, New Brunswick, Saskatchewan, Manitoba and Nova Scotia have today issued CSA Multilateral Staff Notice 51-359 – Corporate Governance Related Disclosure Expectations for Reporting Issuers in the Cannabis Industry (the “Staff Notice”, the full text of which can be found here) which outlines supplementary guidance related to the disclosure of financial interests in the context of mergers, acquisitions or other significant corporate transactions (“M&A Transactions”) by reporting issuers in the cannabis industry (“Cannabis Issuers”).
Regulators noted that the cannabis industry has experienced significant growth and M&A Transaction activity over the past few years and that as the market expanded, many Cannabis Issuers and their directors and executive officers have participated in the financing of other Cannabis Issuers resulting in a higher than usual cross-ownership of financial interests among Cannabis Issuers and their directors and executive officers. Regulators have observed inadequate transparency relating to the cross-ownership of financial interests (which includes overlapping debt and equity interests, or other business relationships) of Cannabis Issuers or directors/executive officers of such issuers as well as examples where corporate governance related disclosures were deficient.
The Staff Notice emphasizes that it is critical for parties to a proposed M&A Transaction to provide each of their security holders with sufficient disclosure to address concerns about potential conflicts of interest in order to allow security holders to make a better informed determination about the merits of the M&A Transaction. The Staff Notice acknowledges that the document in which disclosure is required by Cannabis Issuers undertaking M&A Transactions will vary depending on the structure of the proposed transaction, whether the issuer is the acquiror or acquiree, and the applicable requirements of the stock exchange on which the reporting issuer’s securities are listed (and the Staff Notice outlines specifically obligations in the context of an Annual Information Form, Material Change Report, Information Circular, a Take-over Bid Circular, a Listing Statement / Filing Statement or even a Prospectus). Regardless, the Staff Notice reminds issuers to disclose the cross-ownership of financial interests based on the broader materiality requirements of the applicable disclosure document.
The Staff Notice provides further details regarding disclosure of the independence of board members in involved in M&A Transactions with reference to both National Instrument 58-101 – Disclosure of Corporate Governance Practices and National Policy 58-201 – Corporate Governance Guidelines. ALL reporting issuers should take note of the guidance provided in the Staff Notice as it relates to the determination of board member independence and related governance procedures.
Endeavor Law can assist Cannabis Issuers with Canadian securities law continuous disclosure, compliance and regulatory matters and help such issuers and their directors and executive officers navigate the securities regulatory landscape in M&A Transactions. Endeavor Law will always seek to provide competitive pricing for any legal services requested and is pleased to discuss fee arrangements that suit any potential client.
Does not constitute legal or other advice and must not be used as a substitute for legal advice from a qualified legal professional in your jurisdiction who has been fully informed of your specific circumstances. Information may not be up-dated subsequent to its initial publication and may therefore be out of date at the time it is read or viewed. Always consult a qualified legal professional in your jurisdiction.