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Notice for cannabis issuers:

Disclosures and independence


The Canadian Securities Administrators (CSA) has updated reporting issuers in the cannabis industry on disclosures of conflicts of interest in M&A transactions. While the guidance highlights challenges in the cannabis industry, it applies equally to all issuers—particularly those in emerging growth industries.

The CSA notice, Multilateral Staff Notice 51-359, was released November 12, 2019 and provides key guidance on:

  • the cross-ownership of financial interests by cannabis issuers or directors/executive officers of such issuers, involved in mergers, acquisitions or other significant corporate transactions (M&A transactions); and
  • corporate governance disclosures relating to director independence.

The guidance was triggered by first-hand experiences of CSA staff in Ontario, British Columbia, Quebec, New Brunswick, Saskatchewan, Manitoba, and Nova Scotia.

Disclosure of financial interests in M&A transaction documents

CSA staff have observed M&A transactions where either the acquirer or the acquiree (or a director/executive officer of either entity) had an undisclosed financial interest in the other entity. These financial interests need to be disclosed in the applicable disclosure document, as investors count on transparency when investing and voting.

The cannabis industry is particularly vulnerable to cross-ownership of financial interests. It has grown quickly and steeply. Many cannabis issuers, and their directors and executive officers, participated in the financing of other cannabis issuers. This created a closely knit web of financing relationships, and issuers need to maintain proper governance.

Independence of board members

CSA staff also observed cannabis issuers that identified board members as being independent without properly considering key conflicts of interest, such as whether the director had personal or business relationships with other directors or officers of the issuer. Independent directors may not have any 'material relationship' with an issuer.

In addition, the CSA pointed out a common governance issue: the chair of the board and the chief executive officer of a cannabis issuer being the same person. National Policy 58-201 Corporate Governance Guidelines make clear that the chair of the board should be an independent director, to assure investors that the board operates independently.

CSA recommendations

The CSA encouraged cannabis issuers to review their current corporate governance policies and procedures, and to implement a written code to assist with director and executive officer disclosure. This will ensure potential conflicts of interest and director independence are properly covered.

To learn how your organization can keep its governance on the right side of regulation, reach out to our Corporate Governance professionals.

For more on how BDO's services help cannabis businesses succeed, email us at [email protected].

About BDO's Risk Advisory Services

  • The BDO Canada Risk Advisory Services team is a full-service national practice with deep experience working with publicly listed companies with respect to securities regulation disclosure matters. Cannabis industry public companies, in particular, must demonstrate:
  • effective governance, as required by the regulatory environment; and
  • the appropriate level of rigour and transparency in their public disclosure documents.

BDO's Corporate Governance professionals, part of the Risk Advisory Services team, examine the ways a board functions with other key committees and management to assess its effectiveness. We also assist our clients develop, among other governance practices, robust Code of Ethics processes based on our vast experience as well as industry best practice.

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