The Canadian Securities Administrators have issued CSA Staff Notice 51-342 Staff Review of Issuers Entering Into Medical Marijuana Business Opportunities, summarizing the CSA’s findings and disclosure expectations for reporting issuers contemplating involvement in Canada’s medical marijuana industry.
Here’s the summary from the news release:
- “The CSA’s review aimed to determine if reporting issuers were meeting the requirements of National Instrument 51-102 Continuous Disclosure Obligations, in providing sufficient and balanced disclosure on their intent to enter the medical marijuana field.
- “Overall, the review found unbalanced and promotional disclosure that often promoted the benefits, but failed to outline the risks involved,” said Bill Rice, Chair of the CSA and Chair and CEO of the Alberta Securities Commission. “The level of deficiency in issuers’ disclosure is unacceptable as investors need comprehensive, balanced information to understand the business changes being proposed by these issuers.”
- While the review found that the benefits associated with involvement in the medical marijuana industry were often discussed, these discussions were not consistently accompanied by clear disclosure about the risks, cost and time required before an issuer can begin licensed operations. Additionally, issuers’ disclosure often did not include a discussion about the barriers and obligations to entering this industry.
- The CSA determined that 25 reporting issuers raised serious investor protection concerns. These reporting issuers were generally at a preliminary stage of entry into the medical marijuana field.
- The CSA sent comment letters to all issuers in the scope of its review and asked 92 per cent of them to file a clarifying disclosure document, which they did.
- The review identified, among others, the following disclosure deficiencies:
- lack of clear discussion regarding the issuer’s stage of entry into the medical marijuana field;
- no discussion about time and cost requirements;
- lack of discussion regarding Health Canada’s medical marijuana licensing requirements;
- failure to acknowledge that the issuer will not be able to grow or sell medical marijuana without a licence from Health Canada; and
- no discussion of approvals obtained or required before the issuer may proceed with its proposed business plans (for example, from the board of directors, shareholders or the issuer’s securities exchange).
- The CSA will continue to review announcements from issuers exploring medical marijuana opportunities through its continuous disclosure and prospectus review programs. Issuers should also note that the disclosure guidance in this notice is applicable to companies in any industry considering a change to their primary business.”
The notice observes that “issuers who disclosed their intention to enter the medical marijuana industry obtained an immediate increase in their share price, even in cases where little, or any, substantive information was provided to the public about their prospective plans” – this has been well-covered in the media too. It’s true of course that this doesn’t put investors in a very good light, but on the other hand, there’s something touching about the humanity of it. Think of all these gullible individuals, whose personal history with marijuana has never generated any tangible gain whatsoever – all they’ve ever done is lose money, time, motivation. Can you really blame them if, when they spot a faint chance of redressing the balance, they jump at it too enthusiastically? Really, after such a lifetime of consumption, we should commend them for still having the wherewithal to contact a broker. And the very least that the CSA could have done for them is to issue its notice on the right kind of paper, you know, so readers could roll with it.
Anyway, all great, I hear you say, but what does any of that have to do with the brand of this blog? After all, the staff notice doesn’t contain a single word about financial statements, let alone about IFRS – it’s focused on news releases, MD&A and suchlike. Well, that’s a good question, and I’ll answer it now in detail. Here they are: the top ten reasons why the CSA’s medical marijuana notice might matter to you, the IFRS practitioner:
10. Three of the last five standards were substantially written under the influence
9. The IASB’s corporate governance standards were largely inspired by Cheech & Chong
8. The “Hoogervorst” is a top seller in Amsterdam “coffee shops”
7. Weed is the only possible reason to give a damn about IAS 41
6. What do you think that “joint arrangement” stuff is really about?
5. Possession of small amounts of IFRS background material is still a crime in over fifty jurisdictions
4. IAS 36 specifically describes marijuana as the “grooviest” of the impairment indicators
3. Despite the stigma, most IFRIC interpretations are actually less detrimental to your health than smoking
2. It’s never been conclusively proved that the “B” in “IASB” doesn’t stand for “bong”
And (drumroll) the number one reason why the CSA’s medical marijuana notice might matter to you, the IFRS practitioner:
1. With this list, my long-cultivated reputation for seriousness may have gone up in smoke!
The opinions expressed are solely those of the (clear-headed) author