CCLS Cannabis: Capital Markets and Business Conduct May 15, 2019

Panelists Moderator: John Fabello, Partner, Torys LLP Speakers: Katrina Janke, Senior Legal Counsel, Corporate Finance Branch, OSC Eric Foster, Partner, Dentons Jeff Meade, VP, Legal, TD Bank Group

Topics Update on cannabis issuer capital raising and trading activity in Canada CSA’s disclosure expectations Cannabis issues and stocks in litigation Interaction of the Canadian cannabis market with markets outside of Canada (including U.S., Europe etc.)

Key Issues for Capital Raising Cannabis industry issuers are subject to strict regulatory regimes Local regulatory counsel required in each jurisdiction Need to consider circumstances where cannabis licenses can be put at risk (i.e. unsuitable investors/shareholder) Enhanced regulatory and risk factor disclosure Regulatory opinions are increasingly common

Key Issues for Capital Raising How did the issuer “go public”? IPO, RTO or Direct Listing? Need to ensure that all required historical financial statements have been filed Settlement Cannabis stock can be settled in Canada like any other reporting issuer Challenges for US investors to deposit stock of cannabis company US investors subject to customary legend requirements

Key Issues for Retail Investing Business Continuing confusion around legal treatment of cannabis in many jurisdictions Legal in 10 states in the U.S., but it remains illegal to cultivate, distribute or possess under U.S. federal law. Cannabis activities in the U.S. states where it is legal have depended on the forbearance of Washington The risk of criminal liability appeared to heighten in the U.S. last year when the Trump administration appeared decidedly less tolerant towards limiting enforcement.

Key Issues for Retail Investing Business U.S. criminal liability can reach conduct outside of the U.S. It is possible for Financial Institutions that have connections to cannabis companies that touch the U.S. in some way to become liable under a variety of federal statutes (federal AML, aiding and abetting and a variety of other federal statutes). For financial institutions, the question is how to identify and appropriately manage the criminal liability risk both for the business and its employees as well as for its clients, and how does this square with Canadian law where cannabis is legal.

Key Issues for Retail Investing Business It’s a challenging issue to manage because: It is a “non-traditional” risk It crosses different geographies, different business segments (banking, wealth management, wholesale banking) and different activities (for example, onboarding clients and client trading activity in cannabis issuers It’s a hot topic with the media

Regulations CSA Staff Notice 51-357 – Staff Review of Reporting Issuers in the Cannabis Industry CSA Staff Notice 51-352 (Revised) – Issuers with U.S. Marijuana-Related Activities IIROC Rule 2500 – Minimum Standards for Retail Customer Account Supervision https://www.getsmarteraboutmoney.ca/invest/investment-products/investing-cannabis-industry/