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by an announcement on January 4, 2018 by Jeff Sessions, Attorney General of the United States, which expressly rescinded previous nationwide guidance from the Obama-era specific to marijuana enforcement (or forbearance therefrom) in the United States, including a “Memorandum for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.


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On December 18, 2017, the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV, together with the TSX, the TMX Exchanges) introduced electronic versions of TSX Form 4 and TSXV Form 2A Personal Information Form and the related TSX Form 4B and TSXV Form 2C1 Declaration (the Electronic Documents

On October 19, 2017, the Toronto Stock Exchange (TSX) announced that it had adopted two sets of amendments to the TSX Company Manual after a lengthy consultative process — see our earlier posts of June 4, 2016 and May 5, 2017.  In short, the amendments relate to disclosure requirements for security-based compensation arrangements such as stock option plans and to website disclosure of certain corporate documents.  This post will deal with each in turn.

Security-Based Compensation Arrangements

The amended disclosure requirements for security-based compensation arrangements will be effective for financial years ending on or after October 31, 2017.  In other words, these changes are effective almost immediately.  Technically, the new requirements are set out in amendments to section 613(d) and in new section 613(p) of the TSX Company Manual.

Under section 613(d), as amended, for a shareholders’ meeting at which approval is sought for a security-based compensation arrangement such as a stock option plan or other similar plan, and also on an annual basis, the management information circular must set out, as applicable, (i) the maximum number of securities issuable under the plan as a fixed number together with the percentage which the fixed number represents of the number of issued and outstanding shares, or the fixed percentage of the number of issued and outstanding shares; (ii) the number of outstanding securities awarded under the plan, together with the percentage this number represents of the number of issued and outstanding shares; and (iii) the total number of securities that remain available for grant under the plan together with the percentage that this number represents of the number of issued and outstanding shares.


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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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Investor Protection & Dual Class Share Structures

The recent initial public offerings (IPOs) of major players in the Canadian market, including Aritzia in September 2016, Freshii in January 2017 and Canada Goose in March 2017, have sparked debate about the use of dual class share structures and whether regulatory reform is necessary in order to ensure adequate investor protection.

Corporate Legislation of Dual Class Share Structures:

Pursuant to section 24(3) of the Canada Business Corporations Act (CBCA),[1] when a corporation has only one class of shares, the rights of the holders of those shares are equal in all respects and include the right to vote at any meeting of shareholders of the corporation; to receive any dividend declared by the corporation; and to receive the remaining property of the corporation on dissolution.

Section 24(4) of the CBCA allows for a corporation to have more than one class of shares (Dual Class Share Structure).  The CBCA requires that the rights, privileges, restrictions and conditions attaching to each class of shares be set out; and that the rights to vote, to receive any dividend declared, and to receive the remaining property of the corporation on dissolution be attached to at least one class of shares, but all such rights are not required to be attached to one class.

Although the use of a Dual Class Share Structure is allowed by the CBCA (as well as by provincial corporate legislation, including the Business Corporations Act (Ontario)), securities regulators have imposed some regulations regarding the use of such a structure. For example, the Toronto Stock Exchange (TSX) requires that companies issuing a class of shares with multiple votes have a coattail provision in order to ensure that all investors are treated equally in the case of a takeover[2], and the Securities Act (Ontario) mandates various initial and continuous disclosure requirements for securities issuers.[3]


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In late May 2016, the TSX proposed amendments to the TSX Company Manual (Initial Proposal), most notably in Part IV, which contains the requirements for maintaining a listing. In our earlier post, we provided an overview of the Initial Proposal, which was to introduce a requirement for certain corporate documents to be disclosed, and publicly accessible, on a listed issuer’s website. In the Initial Proposal, the TSX pointed out that while many relevant corporate documents are already publicly available (typically on SEDAR), they are often difficult to find and categorize.

At the conclusion of the initial comment period, the TSX identified concerns from market participants regarding the potential increased regulatory burden and the general uncertainty surrounding the types of documents that fall within the scope of the Initial Proposal. As a result, the proposed amendments were revised (Revised Proposal) and the TSX has issued a further request for comments, to be completed by May 8, 2017. While the rationale of providing participants with easy centralized access to key information remains unchanged, the Revised Proposal attempts to remedy the potential regulatory burden and clarity issues of the Initial Proposal.

The Initial Proposal created ambiguity by providing for broad categories of documents, with short non-exhaustive lists as guidance, that an issuer would be required to post online. For example, an issuer was required to post “constating documents including articles, trust indentures, partnership agreements, by-laws and other similar documents” and “corporate policies that may impact meetings of security holders and voting, including advance notice and majority voting policies.” The Revised Proposal attempts to address the ambiguity by providing specific lists (for example, “articles of incorporation, amalgamation, continuation…”) and in some cases, a catch-all for documents of a similar nature.


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chairs-1840377_1280Stephen Erlichman recently wrote “Majority Voting: Latest Developments in Canada”, a short piece published in the March 22 edition of the Harvard Law School Forum on Corporate Governance and Financial Regulation. The article explains the latest developments in Canada with respect to 1) the Toronto Stock Exchange’s new guidance with respect to its

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As the New Year rolls along, so does commentary on executive compensation. According to the Canadian Centre for Policy Alternatives, by 11:47 am on the first working day of 2017 (January 3rd) Canada’s 100 highest paid CEOs on the TSX index had earned the equivalent of the average annual Canadian wage.

Shareholder votes on the executive compensation disclosed in management proxy circulars (“say on pay”) are not mandated in Canada. However, according to the Institute for Governance of Private and Public Organizations, 80% of the largest Canadian companies have adopted the practice voluntarily or as a result of pressure from investors.

Say on pay initiatives have been well under way in many jurisdictions for a number of years and the reviews are in.

International Say On Pay

In the US, under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities Exchange Commission requires a mandatory advisory say on pay for top executives compensation for public companies. Under the compensation discussion and analysis section of the proxy statement, shareholders do not vote on bonuses, stock options, retirement pay or other specific elements of compensation, simply an “up” or “down” to compensation.

In the UK, companies with shares on the Financial Services Authority’s List require a binding (rather than advisory) annual say on pay vote by shareholders.


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Amendments to TSXV Corporate Finance Policy 5.2 – Changes of Business and Reverse Takeovers

On December 15, 2016, the TSX Venture Exchange (Exchange) published amended Policy 5.2 of the TSX Venture Exchange Corporate Finance Manual (Policy 5.2), which formalized its March 2015 guidance (March 2015 Guidance) on the specific circumstances where the Exchange may waive