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CSE Comments on CSA Staff Notice Regarding Issuers with U.S. Cannabis-Related Activities

October 16, 2017 – Toronto, ON –  The Canadian Securities Exchange (“CSE”) notes today that the Canadian Securities Administrators (“CSA”) have issued a staff notice clarifying specific disclosure expectations for issuers that have, or are currently in the process of developing, exposure to cannabis-related activities in U.S. states that have legalized such activities.

The CSE is very pleased that the CSA has issued this detailed notice, which provides significant clarity for all stakeholders in this sector. Some of the notable disclosure expectations are listed below.

All issuers with U.S. cannabis exposure:

  • Must explain that cannabis remains illegal under U.S. federal law and that the approach to enforcement of U.S. federal laws is subject to change. The resultant risks, including the risk of adverse enforcement action, must be discussed;
  • Must state whether and how their activities are conducted in a manner consistent with any U.S. federal enforcement priorities;
  • Must discuss their ability to access both public and private capital, and indicate whether financing options are available or are not available in order to support continuing operations, given the illegality of cannabis under U.S. federal law.

Issuers with direct involvement in U.S. cannabis cultivation or distribution:

  • Must outline the regulations in the U.S. states in which they operate, and confirm how they are complying with applicable licensing requirements and the regulatory framework enacted by the applicable state;
  • Must discuss their program for monitoring compliance with U.S. state law on an ongoing basis and outline internal compliance procedures. They also must disclose any material non-compliance as well as material citations or notices of violation.

Issuers with indirect involvement in U.S. cannabis cultivation and distribution:

  • Must outline regulations in the U.S. states in which their investee(s) operate;
  • Must provide reasonable assurance that the investee’s business is in compliance with the applicable licensing requirements and regulatory framework enacted by the applicable U.S. state. (A similar requirement also applies to issuers with material ancillary involvement in the U.S. cannabis sector, as defined by the CSA.)

The CSA also noted that they may re-examine their views on the U.S. cannabis sector should the U.S. federal government change its “forbearance-based enforcement approach.”

 “We are grateful to the CSA for issuing timely and carefully considered guidance regarding current and prospective reporting issuers focused on the U.S. cannabis sector,” commented Richard Carleton, CEO. “This document provides significant comfort to these issuers that their Canadian listings will remain in good standing as long as they provide the disclosure that is rightly required by regulators.”

“We are also committed to ensuring that there is no disruption to the central clearing, depository and settlement services provided for these issuers. We are working with the relevant stakeholders on this matter and are very confident that companies will continue to have trades in their securities cleared and settled.”

The CSE strongly recommends that market participants read the entire CSA notice, which is available here:

About the Canadian Securities Exchange:

The CSE is home to more than 300 uniquely listed issues covering a broad range of industry sectors. The CSE provides trade execution, smart routing, risk management, compliance and market information services for Canadian listed instruments.

Recognized as an exchange by the Ontario Securities Commission in 2004, the CSE is designed to facilitate the capital formation process for public companies through a streamlined approach to company regulation that emphasizes disclosure and the provision of efficient secondary market trading services for investors.

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Richard Carleton, CEO



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