Watchdogs say Canadian pot firms lagging on disclosure

A large swath of Canadian cannabis companies are deficient when it comes to disclosing key information to investors, such as how they calculate the fair value of their product and what risks may flow from U.S. operations due to legal issues there, according to the findings of a major review by Canadian securities regulators.

The watchdogs in Ontario, British Columbia, Alberta, and Quebec found that 100 per cent of 21 licensed cannabis producers — among a group of 70 industry operators reviewed — “needed to improve their fair value and fair value related disclosures.”

“Licensed cannabis producers often did not provide sufficient information in their financial statements and management’s discussion and analysis (MD&A) for an investor to understand their financial performance,” the Canadian Securities Administrators said in a report issued Wednesday.

“Some of the disclosure concerns that we identified were industry-wide, with most or all (licensed producers) having the same or similar issues.”

The regulators also found that 74 per cent of the 23 industry players scrutinized that have cannabis-related activities in the United States did not provide sufficient disclosure about the risks inherent in a conflict there between state and federal laws over the treatment of cannabis.

The CSA, an umbrella group for Canada’s provincial and territorial watchdogs, set out specific guidance for these operators in February because some U.S. states are permitting the use and sale of cannabis, or marijuana, even though its cultivation, possession, and distribution are illegal under U.S. federal law.

After the recent review, four industry players had to refile their most recent MD&A documents “to correct more pervasive deficiencies,” the regulators said.

“In the event that U.S. federal law against marijuana is enforced, there could be material consequences for any issuer with U.S. marijuana-related activities, including prosecution and asset seizure,” the CSA warned in February.

Cannabis will be legal across Canada beginning next week on Oct. 17.