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."
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MAP posted-by: Jay Bergstrom