CSA finds fault with medical marijuana disclosure

The CSA says that its review of 62 companies in the medical marijuana industry found that while the benefits of the business were often discussed, clear disclosure about the risks, cost and time required before an issuer can begin licensed operations was often not provided. It also notes that issuers’ disclosure often did not include a discussion about the barriers and obligations to entering this industry, including the need to meet Health Canada’s licensing requirements.

In its review, which was carried out by the British Columbia Securities Commission, the Alberta Securities Commission, the Ontario Securities Commission and the Autorité des marchés financiers, the regulators found that 25 issuers raised serious investor protection concerns. These firms were generally at a preliminary stage of entry into the medical marijuana industry, it notes. And, 92% of the firms reviewed were asked to file a clarifying disclosure document; which they did.

“Overall, the review found unbalanced and promotional disclosure that often promoted the benefits, but failed to outline the risks involved,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC). “The level of deficiency in issuers’ disclosure is unacceptable as investors need comprehensive, balanced information to understand the business changes being proposed by these issuers.”

The CSA says that it will continue to review disclosure from issuers exploring the medical marijuana industry through its continuous disclosure and prospectus review programs. It also says that the guidance in the notice is applicable to companies in any industry considering a change to their primary business (the review finds that most of the companies contemplating a move into medical marijuana are currently in the junior mining sector).