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).


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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.


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