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

2. 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

3. 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.)

4. 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

5. 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

6. 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.

7. 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.

8. 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

9. Regulations
CSA Staff Notice – Staff Review of Reporting Issuers in the Cannabis Industry
CSA Staff Notice (Revised) – Issuers with U.S. Marijuana-Related Activities
IIROC Rule 2500 – Minimum Standards for Retail Customer Account Supervision