On October 10, 2018, the Canadian Securities Administrators (CSA) issued CSA Staff Notice 51-357 Staff Review of Reporting Issuers in the Cannabis Industry (Staff Notice) summarizing a review of the disclosure of 70 reporting issuers[1] in the cannabis industry (Cannabis Issuers). The purpose of the review was to highlight best disclosure practices and common deficiencies among Cannabis Issuers. The CSA concluded that Cannabis Issuers need to improve their disclosure in the following areas:

  • insufficient information is provided by licensed cannabis producers (LPs) in their financial statements and their Management’s Discussion & Analysis (MD&A);
  • Cannabis Issuers are sometimes not consistently complying with securities requirements to provide forward-looking information and balanced disclosure; and
  • 74% of Cannabis Issuers that currently engage in, or are developing, cannabis-related activities in the U.S. (U.S. Cannabis Issuers) failed to include adequate disclosure as set out in CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities (U.S. Disclosure Notice) about the risks related to their U.S. operations.


The CSA focused their review on the following areas: a need for more transparent financial disclosure, U.S. Cannabis Issuers and their disclosure requirements and other key considerations.

  1. Financial Disclosure

Impact of Fair Value Accounting on Financial Statements

LPs are required to measure living plants or biological assets at their fair value under International Financial Reporting Standards. The CSA noted that LPs often did not properly disclose fair value amounts in their statement of profit and loss. As such, the CSA reported that investors were unable to understand how much LPs actually paid to produce their cannabis.

The CSA have concluded that LPs should disclose both:

  • unrealized gains/losses resulting from fair value changes relating to the growth of cannabis; and
  • any realized fair value amounts included in the cost of inventory sold.

Disclosure of Accounting Policies Related to Biological Assets

The Staff Notice concluded that the majority of LPs had profit and loss line items allocated to “production costs” or “cost of goods sold”. However, LPs did not typically discuss the composition of these line items. Therefore, LPs should consider:

  • identifying the direct and indirect costs of the production associated with cannabis; and
  • whether the direct and indirect costs of cannabis are capitalized or whether they are expensed.

If these costs are expensed as they are incurred, the CSA concluded that LPs typically did not include sufficient financial disclosure relating to:

  • the price of the cannabis sold;
  • the calculation of the gross profit subtotal;
  • the fair value measurement process; and
  • non-GAAP financial measures (an example includes, “cash cost per gram”).
  1. Issuers with U.S. Cannabis-Related Activities

The Staff Notice referenced the U.S. Disclosure Notice and reminded Cannabis Issuers that US Cannabis Issuers are expected to disclose:

  • a description of the Cannabis Issuer’s involvement in the U.S.;
  • disclosure that cannabis is illegal under U.S. federal law and any significant risks associated with this, such as restrictions provided by regulatory bodies;
  • a quantification of the Cannabis Issuer’s balance sheet and operating statement which identifies exposure to U.S. cannabis-related activities;
  • an analysis of the Cannabis Issuer’s ability to access public and private capital; and
  • additional disclosures depending on whether the Cannabis Issuer has direct, indirect or ancillary involvement in U.S. cannabis activities.

The CSA have been actively reviewing U.S. Cannabis Issuers’ disclosure and as a result of the review conducted, in connection with drafting the Staff Notice, 17% of U.S. Cannabis Issuers were required to refile their most recent MD&A.

  1. Other Key Considerations

The CSA highlighted other important considerations for Cannabis Issuers which included:

Material Contracts – Consider filing licence agreements or lease facility agreements as material contracts.

Regulatory Frameworks – For those operating outside North America, appropriate disclosure must be made relating to the international regulatory framework applicable to their business. For example, the need for Cannabis Issuers with U.S. operations to disclose recent statements made by the U.S. Customs and Border Protection Agency about the admissibility of those working in, or facilitating the legal cannabis industry into, the United States.

Production Estimates – When disclosing anticipated production capacity in new facilities, consider disclosing the material factors and assumptions related to those projects.


Moving forward, Cannabis Issuers should consider reading the Staff Notice to ensure their disclosure conforms to CSA guidance. For further information on the Staff Notice or continuous disclosure requirements, please contact a member of our Corporate Finance & Securities Law Group.

[1]       Of the 70 Cannabis Issuers reviewed, 21 were LPs, 23 were U.S. Cannabis-Issuers and 31 were classified as other Cannabis Issuers.