Skip to main content

The Canadian Securities Administrators are urging cannabis producers to provide more transparency around potential conflicts of interest involving their executives and directors.

Justin Tang/The Canadian Press

Canada’s association of securities regulators has called out publicly traded cannabis companies for not disclosing when their executives and directors have had financial interests in companies they have bought and sold.

The Canadian Securities Administrators, the umbrella organization of the 13 provincial and territorial securities regulators, issued a notice of guidance on Tuesday directly to cannabis companies, urging them to strengthen their disclosures and “address concerns about potential conflicts of interest” so that investors have “the information they need to make informed decisions.”

The notice comes more than a year after one of Canada’s largest licensed cannabis growers, Aphria Inc., came under fire for several related-party deals that benefited company insiders. In March, 2018, the company purchased Nuuvera Inc., a much smaller cannabis firm. Four Aphria executives and another three directors personally owned stock in Nuuvera. Their stake in Nuuvera was not disclosed to Aphria investors at the time because, the company said, the size of their investment rendered their ownership immaterial. The group first purchased Nuuvera shares worth a combined $900,000 in August, 2017, and when Aphria purchased Nuuvera for $425-million in March, 2018, their collective investment became worth $4.75-million.

Story continues below advertisement

Aphria was also targeted by a short-seller report in late 2018 that made similar allegations. The report alleged that Aphria had overpaid for two South American companies, as well as a Jamaican company, owned by companies with links to financier Andy DeFrancesco, a founding investor of Aphria and close associate of several insiders.

Aphria denied that it overpaid and said the acquisition had been approved by the company’s independent board members. Aphria chief executive Vic Neufeld resigned a little more than a month after the short-seller report was released. A special committee established to review the transaction determined that “certain of the non‐independent directors of the company had conflicting interests in the Acquisition that were not fully disclosed to the board."

In an interview, the Ontario Securities Commission’s director of corporate finance, Sonny Randhawa, declined to comment about specific cases. Speaking generally, he said, “We’re concerned about these situations where there is cross-ownership that is not being disclosed.”

The CSA’s note on Tuesday states that seven of Canada’s 13 securities commissions – Ontario, British Columbia, Quebec, New Brunswick, Saskatchewan, Manitoba and Nova Scotia – have observed “inadequate transparency” around such cross-ownership.

The regulators “are of the view that it is critical for parties to a proposed M&A Transaction to provide each of their security holders with sufficient disclosure to address concerns about potential conflicts of interest. This disclosure will allow security holders to make a better informed determination about the merits of the M&A transaction,” the note states.

The note also states that some cannabis companies have not given enough consideration to board members’ ties to the company before identifying them as “independent.” In addition, there has been more than one instance when the CEO and the chair of the board are the same person, a situation that regulators have discouraged, the note states.

“Investors want to know that structures are in place to permit the board to operate independently.”

Story continues below advertisement

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Report an error Editorial code of conduct
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter
To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies