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Tuesday, Dec 6, 2022
Mugglehead Magazine
Alternative investment news based in Vancouver, B.C.

Canada

Canadian securities regulators take aim at conflict of interest in pot sector

Cannabis companies have a bad reputation when it comes to shady corporate governance, but oversight is about to get tighter

Canadian Securities Regulators Take Aim at Cannabis Companies' Hazy Governance Disclosure

Securities regulators across Canada are about to make life more difficult for cannabis companies with opaque corporate governance.

In a staff notice released to the public Tuesday, regulatory authorities from Ontario, British Columbia, Quebec, New Brunswick, Saskatchewan, Manitoba and Nova Scotia provided guidance in the areas of disclosing financial interests in significant corporate transactions, and in the independence of board members.

While the tightening of financial oversight might seem meddlesome for some businessfolk, the move should be welcome for investors wanting more insight into any possible conflicts of interests between corporate honchos and the companies they have stake in.

Chief of corporate finance for the British Colombia Securities Commission Mike Moretto said regulators have been thinking about the cannabis industry since its inception into the marketplace as publicly listed companies back in 2015.

“Specifically, we’ve provided additional guidance to issuers and investors along the way and I think this is just one piece of that,” he said. “It really highlights an area where we’re concerned about situations where one cannabis issuer is acquiring another and there’s cross ownership of financial interests and really we’re looking at the disclosure side.”

Mo cross ownership of financial interests, mo problems

Increasing numbers of allegations regarding shady dealings in the cannabis sector have come to light in recent weeks. For example, the Ontario Securities Commission issued an order at the end of September against Canada Cannabis Corporation (OTC: CCAN) implicating three of its top executives of defrauding its investors.

The allegations involve siphoning millions of dollars from the corporation into a lighting firm owned by one of Canada Cannabis Corp.’s vice presidents, without informing its investors.

The notice from Canada’s securities regulators outline two key sections. The first is disclosure of financial interests in merger and acquisitions transaction documents, which notes the cannabis industry’s higher-than-usual cross ownership of financial interests. The second is independence of board members, which speaks to cases where members have identified as independent without giving adequate consideration to potential conflicts of interest.

Part of the process of improving disclosure in the marketplace, Moretto said, is to communicate one-to-one with companies who present inadequate information.

“But what we find is sometimes we see more systemic inadequacy, and therefore we think a staff notice is the best way to apply that — and kind of put the industry on notice that they need to improve either their disclosure or their practices.”

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