Pubdate: Tue, 24 Feb 2015 Source: Globe and Mail (Canada) Copyright: 2015 The Globe and Mail Company Contact: http://www.theglobeandmail.com/ Details: http://www.mapinc.org/media/168 Author: Janet McFarland Page: A1 REGULATORS WARN OF POOR DISCLOSURES BY MARIJUANA COMPANIES Canadian securities regulators have issued a warning to investors about poor disclosures by medical marijuana companies, saying a review has concluded many are providing deficient information to shareholders when announcing their plans to join the sector. Securities commissions in British Columbia, Alberta, Ontario and Quebec teamed up to review news releases issued by 62 publicly traded companies announcing plans to become marijuana producers under a new federal program that opened last April. The program will permit private-sector companies to grow and sell marijuana under licence from Health Canada. The study comes after a Globe and Mail investigation outlined problems with disclosures provided by CEN Biotech, which was seeking a Health Canada licence to open Canada's biggest medical marijuana facility. The securities regulators said 25 issuers "raised serious investor protection concerns" with announcements that were unbalanced and omitted key information, including their stage of development, their timeline for becoming a producer and the licensing process required by Health Canada. "In general, we found that issuers' disclosures was often unbalanced and promotional in nature," the review concluded. "While the benefits associated with involvement in the medical marijuana industry were often discussed, these discussions were not consistently accompanied by disclosure about the risks, uncertainties, cost implications and time required before the issuer can begin licensed operation." In the CEN Biotech case, Health Canada notified the company on Feb. 13 that it intended to reject its application, but the company was given 20 days to respond. CEN is owned by Michigan based Creative Edge Nutrition Inc., which trades on the U.S. over-the-counter market and is not directly regulated by Canadian securities regulators. CEN faced accusations of making inaccurate statements to investors, including claims the company had been licensed or was on the verge of being licensed by Health Canada, when it was not. The review by Canadian regulators found 72 per cent of the companies that announced plans to get into the medical marijuana field were previously junior mining companies planning to convert to a new business, while a further 8 per cent were oil and gas companies. The remaining 20 per cent were technology and agriculture companies, or were new or formerly inactive companies. Regulators said many companies saw a jump in their share price on announcing plans to enter the medical marijuana field, "even in cases where little, or any, substantive information was provided to the public about their prospective plans." Bill Rice, chair of the Alberta Securities Commission, said the disclosures in general are not adequate. "The level of deficiency in issuers' disclosure is unacceptable as investors need comprehensive, balanced information to understand the business changes being proposed by these issuers," Mr. Rice said in a statement. U.S. industry analyst Alan Brochstein of 420 Investor, who covers Canadian marijuana companies, said the whole sector is new, and there are some startup companies with "scary" disclosures. He said he focuses on larger companies that already have Health Canada licences or trade on the TSX Venture exchange because their business is more advanced. "There's just a ton of risk in this whole industry, but I feel like the disclosures are pretty good for those [larger] companies," Mr. Brochstein said. He said the fact Canadian regulators are closely scrutinizing the new sector "actually gives me more confidence," adding he has reported particularly worrisome companies to U.S. regulators and has gotten little response. "From my vantage point, I don't look at all these little mining companies that are marijuana company wannabes. But the ones I look at, I think the disclosures are pretty good, and they're much better than they are in the United States." - --- MAP posted-by: Jay Bergstrom