October 10, 2018 / 5:30 PM / 12 days ago

Canadian regulator finds cannabis company disclosures inadequate

TORONTO (Reuters) - A Canadian regulatory group said on Wednesday that it had found that the level and quality of disclosure by cannabis companies was insufficient.

FILE PHOTO: A flowering cannabis plant is pictured Quebec, Canada, on Sept 26, 2018. REUTERS/Chris Wattie/File Photo

The Canadian Securities Administrators (CSA), which conducted a review of disclosure practices of 70 Canadian and U.S. cannabis producers, said some companies were inconsistent in complying with Canadian securities requirements on issues such as providing forward-looking information and giving guidance for balanced disclosure.

“Licensed cannabis producers often did not provide sufficient information in their financial statements and management’s discussion and analysis for an investor to understand their financial performance,” the CSA said in a report posted on the websites of provincial securities regulators.

The move comes ahead of next week’s expected legalization of recreational cannabis in Canada. Cannabis stocks have been on a tear over the past year in anticipation of strong demand following legalization.

“Issuers in the industry in a very short time period have graduated from being on the fringe to having multi-billion dollar market caps,” said James Munro, co-chair of the cannabis practice at law firm McMillan.

“The CSA is reconciling the size of the industry with the type of meaningful disclosure that is required of such companies.”

The review appears to have already had an impact on cannabis companies.

The CSA, an umbrella group representing provincial securities regulators, singled out companies with U.S. cannabis operations for improving disclosures, while saying that overall licensed producers took steps to improve disclosure.

As a result of the review, 74 percent of issuers with U.S. cannabis-related activities took action to beef up disclosure and 17 percent refiled their most recent MD&A documents.

CSA did not name any producers in its review.

Reporting by John Tilak, Editing by Rosalba O'Brien and Susan Thomas

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