Canadian Disclosure Obligations for United States Cannabis Companies

In October 2017, the Canadian Securities Administrators (CSA) published CSA Staff Notice 51-352 for companies with United States cannabis-related activities. It provided some long-sought commentary on the disclosure requirements and regulation of entities with ties to the growing United States cannabis industry. Although many states have decriminalized the drug to varying degrees, cannabis remains a Schedule 1 drug as defined by the United States Controlled Substances Act. This discrepancy has caused confusion for many United States cannabis companies and investors on how to comply with Canadian disclosure requirements.

Under the CSA Notice, United States cannabis companies must provide an appropriate level of disclosure to allow each investor to make an informed decision based on all “material facts and risks” related to cannabis-related activities. In particular, the Notice outlined the disclosure requirements for companies on the basis of the type of activities being undertaken. Companies with direct involvement in cultivation or distribution must outline the regulations for states in which the company operates, and confirm how the company complies with all the applicable licensing requirements and regulatory frameworks.

In January 2018, United States Attorney General Jeff Sessions issued a memorandum rescinding previous guidance to federal law enforcement relating to cannabis. The CSA is considering whether its disclosure-based approach for United States cannabis companies remained appropriate in light of the rescission of the Obama administration’s hands-off approach.