Transparency relating to cross-ownership of financial interests is “inadequate,” says Canadian cannabis regulator

Individuals involved in Canada’s legal cannabis industry can take the CSA’s transparency documents on board as a recommendation

Bethan Rose Jenkins, Cannabis News Writer/Editorial

Recommendations to improve Canada’s cannabis industry transparency were recently published by regulatory bodies spread across seven provinces. Growth of the industry – which blossomed in October 2018 following the passing of Bill C-45 – has caused a number of transparency issues to crop up relation to mergers, acquisitions and corporate transactions. 

This is according to the Canadian Securities Administrators (CSA), which published a news release on Tuesday, November 12, stating how governance-related disclosures will be dealt with accordingly. Administrators say that investors will be granted access to the necessary information required to avoid future conflicts of interest.

“[Investors] need to know what the resulting company will look like, it’s ownership structure and if the structure creates any conflict of interest,” said Heather Kuchuran, who works at Saskatchewan’s Financial and Consumer Affairs Authority. “This type of disclosure information, that’s required, could impact an investors decision on whether or not to support a merger or acquisition.”

CSA’s cannabis industry transparency documents could resolve “higher than usual” cross-ownership

Rapid expansion of Canada’s legal cannabis market has prompted a number of cannabis companies – including their executive officers and directors – to finance industry contenders. As a result of this, the CSA says that cross ownership of financial interests has been “higher than usual.”

Examples of the financial interests under scrutiny range from business relationships to equity interests and debt. According to the CSA, numerous acquirers of merger and acquisition transactions had not disclosed their financial interests. 

CSA’s cannabis industry transparency document makes board recommendation 

In addition to the increasing instances of financial interest cross ownership in Canada’s cannabis industry, the CSA has also been alerted to cases in which cannabis company board members identified themselves as being independent; independent parties paid little to no thought about the risk they take if quarrels arise regarding financial interests.

The CSA says that various cannabis companies’ chief executive officers and board chairman have been identified as the same entity. Administrators put forward a recommendation that, in order to steer clear of conflicts, the chair of the board ought to be an independent director. In cases whereby this is unsuitable, an independent person should be the designated lead director.

“This may include, for example, personal or business relationships with other directors and executive officers of the issuer that have not been properly considered in the determination of a director’s independence,” reads the CSA’s press release. “Investors want to know that structures are in place to permit the board to operate independently.”

Note: Individuals involved in Canada’s legal cannabis industry can take the CSA’s transparency documents on board as a recommendation, as opposed to strict guidelines that must be adhered to.