Guidance would be relevant to any issuer that is changing its business as this notice provides an example of the level of disclosure the regulators would expect.

On February 23, 2015, on behalf of the Canadian Securities Administrators (the “CSA”), staff from the British Columbia Securities Commission, the Alberta Securities Commission, the Ontario Securities Commission and the Autorité des marchés financiers (the “Staff”) released Staff Notice 51-342 Staff Review of Issuers Entering Into Medical Marijuana Business Opportunities (the “Notice”). The Notice is the result of the Staff’s review of certain reporting issuers that had publicly announced their intention to enter into Canada’s medical marijuana industry and whether they were providing sufficient and balanced disclosure related to their change in industry.

The Staff found deficient disclosure on the part of a majority of the issuers reviewed, prompting them to require the issuance of clarifying disclosure. The Staff found that disclosure was often unbalanced and overly promotional, in a manner that emphasized the benefits of the medical marijuana industry but failed to address the risks, costs and time required before an issuer can begin licensed operations.

Other common disclosure deficiencies outlined in the Notice include:

  1. lack of clear discussion regarding the issuer’s stage of entry into the medical marijuana field;
  2. lack of any discussion of Health Canada’s medical marijuana licensing requirements;
  3. failure to acknowledge that the issuer will not be able to grow or sell medical marijuana without a licence from Health Canada; and
  4. no discussion of any approvals that were obtained or may be required before the issuer may proceed with its proposed business plans.