As a result of the recent rescission of the Cole Memorandum which allowed for a forbearance approach to the enforcement of U.S. federal laws on marijuana-related activities, on January 12, 2018, the Canadian Securities Administrators (the “CSA”) announced that they would reconsider Staff Notice 51-352 – Issuers with U.S. Marijuana-Related Activities which outlined a disclosure-based approach to highlight risks facing issuers with marijuana-related activities in the United States. The CSA has now published a revised staff notice (the “CSA Notice”), which replaces the prior notice of October 16, 2017, setting out its disclosure expectations for an issuer that is engaged, or wishes to engage, in marijuana-related activities in a U.S. state where such activity is permissible.
The CSA Notice makes clear that the revised disclosure-based approach set out in a chart format assumes that the type of marijuana-related activity engaged in by the issuer is conducted in compliance with the U.S. state law in the applicable state in which such activity is legal and that such disclosure is expected to be provided by all issuers, having regard to their level of involvement in marijuana-related activities in the U.S., in a clear and predominant manner in prospectus filings and certain continuous disclosure documents as well exchange listing documents in the context of a reverse takeover or spinoff transaction.
The CSA expects U.S. marijuana issuers to remain proactive in their disclosure obligations. Issuers not in compliance may be refused a receipt for a prospectus, required to restate a deficient filing or may face enforcement action. Issuers should also remain mindful of any legal or regulatory change to determine whether such change or changes would result in a material change triggering timely disclosure obligations under applicable Canadian securities laws. Furthermore, as noted in the CSA Notice, compliance with the risk disclosure obligations set out in the CSA Notice does not insulate an exchange-listed issuer from U.S. federal law.
In addition, the CSA has announced that CDS will continue to clear the securities of listed issuers that conduct marijuana-related activities in the United States.