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In August 2017, we considered the guidance offered by the Canadian Securities Administrators (CSA) regarding the application of securities laws to the blockchain industry and initial coin offerings (ICOs), primarily as set out in CSA Staff Notice 46-307 Cryptocurrency Offerings.  In that post, we noted that the CSA have provided little guidance regarding when they would consider cryptocurrencies to be securities, and thus subject to Canadian securities rules.
Continue Reading Regulatory Net Tightening on the “Wild West” of the Blockchain and Cryptocurrency Industry

We noted in our post of January 18, 2018 that the Canadian Securities Administrators (CSA) were reconsidering whether the CSA’s disclosure-based approach for issuers with U.S. marijuana-related activities remained appropriate.  The CSA’s reconsideration was triggered by an announcement on January 4, 2018 by Jeff Sessions, Attorney General of the United States, which expressly rescinded previous nationwide guidance from the Obama-era specific to marijuana enforcement (or forbearance therefrom) in the United States, including a “Memorandum for All United States Attorneys” dated August 29, 2013 from James M. Cole, then-Deputy Attorney General of the United States.  As we noted, while medicinal marijuana is legal in numerous American states and recreational marijuana is legal in several states, marijuana remains illegal at the federal level in the United States, thus creating a dilemma for the CSA with respect to Canadian issuers with marijuana-related activities in the United States.

On February 8, 2018, the CSA published CSA Staff Notice 51-352 (Revised) Issuers with U.S. Marijuana-Related Activities (Revised 51-352), setting out the expectations of CSA staff with respect to disclosure for specific risks faced by issuers with marijuana-related activities in the United States.  In short, the CSA have maintained their disclosure-based approach for Canadian issuers with marijuana-related activities in the United States, as opposed to prohibiting such issuers from raising funds in Canada or listing on a Canadian stock exchange.  Issuers will continue to be able to raise funds and list in Canada, notwithstanding the fact that their operations may be illegal under United States federal law and that they may face prosecution at any time, as long as such risks are adequately disclosed.Continue Reading The Saga Continues: Marijuana, United States Federal Law and the Canadian Securities Administrators

As noted in our post of October 18, 2017, the Canadian Securities Administrators (CSA) issued CSA Staff Notice 51-352 Issuers with U.S. Marijuana-Related Activities on October 16, 2017.  The CSA Staff Notice noted the discrepancy between United States federal and state law as it relates to the use and sale of marijuana.  In short, while medicinal marijuana is legal in numerous American states and recreational marijuana is legal in several states, marijuana remains illegal at the federal level in the United States.

The CSA Staff Notice stated that how a company with marijuana activities in the United States ensures compliance with U.S. state-level regulatory frameworks forms an important part of that company’s Canadian continuous disclosure record, and set out specific, detailed disclosure requirements for issuers with marijuana-related activities in the United States, applicable to continuous disclosure documents such as an annual information form (AIF) or management’s discussion and analysis (MD&A), and to a prospectus in the event of a public offering.

All of that may have changed on January 4, 2018, when Jeff Sessions, Attorney General of the United States, issued a one-page “Memorandum for All United States Attorneys” regarding “Marijuana Enforcement” (Sessions Memorandum).  The Sessions Memorandum expressly rescinded, effective immediately, previous nationwide guidance specific to marijuana enforcement in the United States, including a “Memorandum for All United States Attorneys” dated August 29, 2013 from James M. Cole, then-Deputy Attorney General of the United States, entitled “Guidance Regarding Marijuana Enforcement”.  A press release issued by the U.S  Department of Justice contemporaneous with the Sessions Memorandum announced that the Sessions Memorandum constitutes a “return to the rule of law” and that “Attorney General Jeff Sessions directs all U.S. Attorneys to enforce the laws enacted by Congress and to follow well-established principles when pursuing prosecutions related to marijuana activities”.Continue Reading When Jeff Sessions Talks About Marijuana, the Canadian Securities Administrators Listen

On October 16, 2017, the Toronto Stock Exchange (TSX) issued Staff Notice 2017-0009 regarding listed companies engaged in the marijuana business, whether directly or indirectly, in the United States.  At the same time, the TSX Venture Exchange (TSXV) issued a Notice to Issuers virtually identical to the TSX Staff Notice.  It is well-known that recreational cannabis has been legalized in certain American states (in alphabetical order, Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and Washington) yet remains illegal at the federal level in the United States.  The TSX Staff Notice and TSXV Notice to Issuers clarify the position of the two Exchanges in light of this legal conundrum.  In short, marijuana, the United States and listing on the TSX/TSXV do not mix.

The TSX Staff Notice states the general rule that a TSX-listed company must act in compliance with the rules and regulations of all regulatory bodies having jurisdiction over it.  The Staff Notice notes that marijuana remains a Schedule I drug under the United States Controlled Substances Act, such that it is illegal under United States federal law to cultivate, distribute or possess marijuana, and that financial transactions involving proceeds generated by, or intended to promote, marijuana-related business activities in the United States may form the basis for prosecution under applicable U.S. federal money-laundering legislation.

According to the Staff Notice, companies listed on the TSX with ongoing business activities that violate United States federal law regarding marijuana are not in compliance with the requirements of the TSX.  These business activities may include, among other things, (i) direct or indirect ownership of, or investment in, businesses engaged in the cultivation, distribution or possession of marijuana in the United States (which the Staff Notice refers to as “Subject Entities”), (ii) other commercial arrangements with Subject Entities (presumably, a joint venture, a “streaming” deal, or other similar contractual arrangement), (iii) providing services or products that are specifically designed for, or targeted at, Subject Entities, or (iv) commercial interests or arrangements with entities (CSA) engaging in the business activities described in (iii).Continue Reading Toronto Stock Exchange Issues Staff Notice on U.S. Marijuana Companies

On September 28, 2017, the securities regulatory authorities in all Canadian jurisdictions, other than British Columbia (CSA), issued CSA Multilateral Notice of Multilateral Instrument 91-102 Prohibition of Binary Options and Related Companion Policy (Instrument) in response to an increased number of complaints received relating to the marketing of binary options. Subject to the necessary approvals,…

On October 5, 2017, the staff of securities regulatory authorities (SRA) in Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Quebec, Saskatchewan and Yukon published CSA Multilateral Staff Notice 58-309, Staff Review of Women on Boards and in Executive Officer Positions – Compliance with NI 58-101 Disclosure of Corporate Governance Practices. The Staff Notice provides this year’s summary of the disclosure reviewed by the SRA relating to the Women on Boards and in Executive Positions Rules (WB/EP Rules).

The WB/EP Rules require that, on an annual basis, each non-venture issuer disclose:

  • the number and percentage of women on the issuer’s board of directors and in executive officer positions;
  • whether it has a policy relating to the identification and nomination of women directors;
  • whether it has director term limits or other mechanisms of board renewal;
  • whether it has targets for women on its board and in its executive officer positions; and
  • if it considers the representation of women in its director identification and selection process and in its executive officer appointments.

The Staff Notice focused on the disclosure of 660 TSX-listed issuers with year-ends between December 31, 2016 and March 31, 2017, who had filed information circulars or annual information forms by July 31, 2017. This is down from the 722 issuers who provided disclosure as part of the 2015 initial review. The SRA noted that Canadian banks, who are often early adopters of diversity programs, are not included in this summary. This is the third such annual review to have taken place.Continue Reading CSA Review of Women on Boards and in Executive Officer Positions

On August 24, 2017, the staff of the Canadian Securities Administrators other than Saskatchewan (CSA) published CSA Staff Notice 46-307 Cryptocurrency Offerings (the Staff Notice) in response to increased activity within the distributed ledger technology or “blockchain” industry. The Staff Notice provides guidance regarding the application of Canadian securities laws to businesses operating in that industry, in particular those undertaking initial “coin” or “token” offerings (ICOs), exchanges on which those coins, tokens and cryptocurrencies are traded and investment funds that invest in such assets.

The Staff Notice provides that in the CSA’s view many coins, tokens and cryptocurrencies fall within the definition of “securities” under Canadian securities laws. An offering of such tokens would therefore require a prospectus or exemption from prospectus requirements and businesses supporting and operating ancillary to such tokens could be subject to registration requirements. The Staff Notice also provides that such products may also be derivatives and subject to the derivatives laws adopted by the Canadian securities regulatory authorities.

The Staff Notice confirms speculation among industry participants and advisors that Canadian regulators would take this approach, which is similar to the positions articulated by the United States Securities & Exchange Commission and securities regulators in Singapore.

With respect to ICOs, the Staff Notice provides that, from the CSA’s perspective, many of the ICOs completed to date involved the sale of securities and that securities laws in Canada will apply if the person or company selling the securities is conducting business from within Canada or there are Canadian investors in the tokens.

The CSA are aware of businesses marketing their tokens as software products and taking the position that the tokens are not subject to securities laws.  It appears to be the CSA’s view, however, that in many cases, when the totality of the offering or arrangement is considered, the tokens should properly be considered securities.  In assessing whether or not securities laws apply, the Staff Notice states that the CSA will consider substance over form and apply a purposive interpretation to the law with the objective of investor protection in mind.Continue Reading Canadian Securities Administrators Issue Guidance Regarding Cryptocurrency Offerings

On July 27, 2017, the Canadian Securities Administrators (CSA) announced in CSA Staff Notice 51-351 Continuous Disclosure Review Program Activities for the fiscal year ended March 31, 2017 that a CSA Staff Notice detailing the results of the continuous disclosure review program (CD Review Program) will be published every two years instead of annually. As a result, there will be no CSA Staff Notice related to the CD Review Program for the fiscal year ended March 31, 2017 and instead the next CSA Staff Notice will be for the fiscal year ended March 31, 2018.

CSA Staff Notices regarding the results of the CD Review Program are aimed at providing an overview of common continuous disclosure deficiencies. Further details regarding the CD Review Program can be found in CSA Staff Notice 51-312 (revised) Harmonized Continuous Disclosure Review Program and have been summarized below.

In 2004, the CSA established the CD Review Program. The goal of the CD Review Program is to improve the completeness, quality and timeliness of continuous disclosure by reporting issuers in Canada. The CD Review Program educates issuers during continuous disclosure reviews and identifies material disclosure deficiencies and questionable transactions that affect the reliability and accuracy of an issuer’s disclosure record.

Under the CD Review program, the principal regulator is responsible for reviewing the issuer’s continuous disclosure record and taking further steps related to continuous disclosure compliance. The CSA uses a risk-based approach to select issuers to review and to determine the type of reviews to conduct, which can either be a “full” review or an “issue-oriented” review. Staff review the overall quality of the issuer’s disclosure, and in particular, assess whether there is sufficient information for the reader to understand the issuer’s financial performance, financial position, business risks and future prospects. Issues identified during the review are typically communicated to the issuer through a comment letter, which then invites the issuer to provide a written response.Continue Reading The CSA’s Continuous Disclosure Review Program

Effective September 5, 2017, the settlement cycle in the Canadian and US securities markets will be shortened from three days after the date of a trade (T+3) to two days after the date of a trade (T+2). In Canada, this change follows the announcement on April 27, 2017 by the Canadian Securities Administrators of their…

On April 20, 2017, the Canadian Securities Administrators (CSA) released Staff Notice 45-323 (Notice). The Notice provided an update on the use of the rights offering exemption available to reporting issuers (Exemption) under section 2.1 of National Instrument 45-106 Prospectus Exemptions, as of December 31, 2016, approximately one year after it was adopted in its current form.

A rights offering is intended to allow reporting issuers to raise capital, while providing an opportunity for existing security holders to protect themselves from dilution by participating in the offering on the basis of their proportional interest. In its original form, prospectus-exempt rights offerings were underutilized, as the excessive time and costs associated with such offerings made them an unappealing option for issuers. On December 8, 2015, in an effort to encourage greater use of prospectus-exempt rights offerings, the Exemption was amended to require simplified plain-language offering materials, often using a question and answer format, and allowing for an increased dilution limit of 100%.

In the Notice, the CSA noted that in the first year of the amended Exemption, the time required to complete a rights offering was reduced from approximately 85 days to approximately 38 days. It is therefore not surprising that a total of 30 rights offerings were completed across all industries, raising approximately $247.6 million – a marked increase from the past average of 13 rights offerings per year. In these 30 rights offerings, an average of 39% of the outstanding securities of a certain class were issued and 48% of the amounts being raised were from insiders who often acted as stand-by guarantors.Continue Reading Update on Use of the Rights Offering Exemption