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Canadian publicly listed issuers have recently been given guidance by the Canadian Securities Administrators (“CSA”) and the Toronto Stock Exchange (“TSX”) with respect to issuers that currently have or are in the process of developing cannabis-related activities in the United States (“U.S.-Related Cannabis Issuers”). Regulator guidance in Canada for U.S.-Related Cannabis Issuers was much anticipated due to the discrepancy between the treatment of cannabis between Canadian and U.S. law, including the fact that while some U.S. States have authorized the use and sale of cannabis, it remains illegal under U.S. federal law. U.S. federal law relating to cannabis could be enforced at any time, which puts U.S.-Related Cannabis Issuers at risk of being prosecuted.
CSA Disclosure-Based Approach
The CSA set out its disclosure expectations for U.S.-Related Cannabis Issuers in Staff Notice 51-352 Issuers with U.S. Marijuana-Related Activities (“CSA Staff Notice”) on October 16, 2017, which is premised on the assumption that U.S.-Related Cannabis Issuers are complying with current U.S. State laws and regulations.
1 It should be noted that this restriction is harsher than that applicable to Registered Retirement Savings Plans (“RRPSs”). Due to a specific exclusion in the tax rules governing RRSPs, income and gains realized from qualified investments in an RRSP are tax exempt even if the RRSP was carrying on a business (e.g. day trading securities). See paragraph 1.89 of Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.
By: Andrew Elbaz, Alexandra (Sasha) Toten,
and Joseph Jamil of Minden Gross, LLP.
CSA Announces Disclosure Expectations for Cannabis
Companies Operating in the U.S.