Canadian Securities Administrators offers transparency recommendations to cannabis industry

Regulatory bodies across seven provinces recently published recommendations to provide guidance to the cannabis industry around transparency.

As the industry has grown, the Canadian Securities Administrators (CSA) have noted a lack of transparency around mergers, acquisitions and other corporate transactions. 

The CSA said in a news release Tuesday that strengthening governance-related disclosures to address concerns about potential conflicts of interest will provide investors with the information to make informed decisions. 

"[Investors] need to know what the resulting company will look like, it's ownership structure and if the structure creates any conflict of interest," Heather Kuchuran, from the Financial and Consumer Affairs Authority of Saskatchewan, said.

"This type of disclosure information, that's required, could impact an investors decision on whether or not to support a merger or acquisition." 

Kuchuran said the documents published Tuesday are more recommendations to the cannabis industry than guidelines for it to follow.

According to the CSA, market expansion has led to cannabis companies, their directors and executive officers participating in the financing of their competition. That has led to a "higher than usual" cross-ownership of financial interests in these companies.

Those financial interests may include overlapping debt or equity interests, or business relationships. 

The CSA said it has observed merger and acquisition transactions where either the acquirer or acquiree had undisclosed financial interests in the other entity. 

The CSA also observed instances where board members of cannabis companies were identified as independent, without considerations being made to potential conflicts of interest or other factors that could compromise their independence.

"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," the CSA's release said. 

Thre have also been cases where the chair of the board and the chief executive officer of the cannabis issuer are the same person.

The CSA's release recommended that the chair of a board should be an independent director.  Where that is inappropriate, an independent person should be appointed to act as lead director.

"Investors want to know that structures are in place to permit the board to operate independently," the release said.