March 28, 2017

By: Andrea Hill

I am pleased to bring you this instalment of my weekly blog, rounding up what’s happening in the cannabis industry in Canada and abroad.

Recreational weed legislation by week of April 10: Federal Government

  • Giant update on pending recreational cannabis legislation – CBC News is reporting that the federal government has confirmed that the much-anticipated legislation will be announced during the week of April 10.
  • As expected, the report states that provinces will be in charge of determining how cannabis is distributed and sold, subject to a minimum purchasing age of 18 (which may be raised by the provinces).  Provincial governments will also have the right to set the price of cannabis in their respective provinces.  This would be a change from current regulations, in which the federal government leaves pricing up to licensed producers.
  • The report also states that the legislation will allow Canadians to grow their own cannabis, to a maximum of four cannabis plants per household.
  • More to come on this exciting development.

Just the two of us: Aphria joins Canopy on the TSX

  • On March 22, Aphria became the second licensed producer to list its shares on the Toronto Stock Exchange (TSX), joining Canopy Growth Corporation, which graduated to the “big board” from the TSX Venture Exchange on February 1.
  • Graduating to the TSX is a significant move and requires the satisfaction of criteria regarding a company’s net tangible assets, property, history of operations, working capital and financial resources, distribution of public shareholders and evidence of present or planned revenue.
  • Once listed on the TSX, a company no longer qualifies for the “venture issuer” exemptions under securities laws.  For example, TSX-listed companies must:
    • file an annual information form (this is optional for venture issuers);
    • file their annual and quarterly financial statements in a shorter period of time than a venture issuer;
    • ensure that each of their audit committee members is independent and financially literate, as such terms are defined in securities laws (the independence and financial literacy requirements do not apply to a venture issuer, although a majority of the members of a venture issuer’s audit committee must not be executive officers, employees or control persons of the issuer); and
    • obtain formal valuations for certain related-party transactions and business combinations (the formal valuation requirement does not apply to venture issuers).
  • However, TSX-listed companies can benefit from expanded financing opportunities, enhanced stock liquidity, improved visibility, additional analyst coverage, and specialized indices (Canopy was recently added to the S&P/TSX Composite index).
  • Listing on the TSX also improves a company’s access to institutional investors.  Many institutional investors trade exclusively on the TSX, either because they are subject to percentage ownership restrictions (the case for many pension funds, for instance), or because the sheer scale of their trading activity could distort the market for venture issuers.

All about your biological assets – and get your mind out of the gutter, this is a weed blog

  • The Financial Post published a great article discussing accounting methods for biological assets, including cannabis.
  • International Financial Reporting Standards (IFRS) requires that biological assets, which are generally living animals or plants, be recognized as revenue as they grow, procreate, produce and degenerate in qualitative or quantitative ways. Some examples of biological assets are livestock, vineyards, cannabis plants, and trees in a forest (an example of money actually growing on trees!)
  • Under IFRS, biological assets must generally be measured at their fair value less costs to sell. The “fair value” of a biological asset is the amount for which the asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
  • In calculating the value of its biological assets, a licensed producer is required to make a number of estimates, including estimating the stage of growth of the cannabis, harvesting costs, selling costs, sales price, and expected yields for the cannabis plant.  This value can increase as cannabis plants mature and are propagated via clippings and seeds, and can decrease through, for example, wastage of cannabis plants.
  • Licensed producers can use different estimates of fair value, making it difficult to compare revenue numbers between LPs.  A LP could show a profit without having any sales.  This makes it difficult to make “apples to apples” comparisons between LPs based on their financial disclosure.
  • It’s not often that the subject of biological assets comes up on the resource and tech-heavy junior Canadian exchanges, so many investors don’t get a lot of exposure to it.  However, its effects on the financial disclosure of licensed producers can be significant.

Health Canada to spend $9.6 million over five years to teach Canadians about cannabis; tax levels to remain stable

  • The federal budget for the 2017-2018 fiscal year, released March 21, announced that Health Canada will direct $9.6 million over five years, with $1 million per year to follow, to support public education programming and surveillance activities regarding marijuana in advance of the federal Liberal government’s plan to legalize recreational cannabis.
  • The Final Report of the Task Force on Cannabis Legalization and Regulation released in late 2016 stated that it had heard from the public that education would be “critical” to communicate information about the new recreational system and its objectives, and to respond to health and safety concerns such as impaired driving and the risks of dependence and heavy use of cannabis.
  • The federal government has made the protection of public health and safety a cornerstone of its cannabis legalization policy.
  • The federal government also stated in the budget that it will take steps to ensure that cannabis taxation levels “remain effective over time.”  Commentary on the promised recreational cannabis regime, including the above Task Force Report, has noted that legalized “rec” cannabis must be priced competitively in order to effectively compete with the black market.

Big fish: A single investor invested $24 million in Canopy

  • On March 22, Canopy announced that it had closed a private placement with a single investor for proceeds to Canopy of approximately $24 million.  The investor was not identified and it is unclear whether it is an individual or an entity, such as an investment fund.
  • This deal represents one of the largest investments ever made by a single investor in a public licensed producer.
  • Thus far, public LPs have generally financed themselves through capital raises brokered by independent investment banks and subscribed for by retail investors – capital markets in the cannabis industry are, I have argued, grassroots in nature.

From Oxford comma to Oxford canna: Oxford University launches medical cannabis research program

  • Oxford University recently announced that it will be the site of Oxford Cannabinoid Technologies (OCT), a multi-million-pound research program studying new cannabinoid-based treatments for pain, cancer, and inflammatory disease.
  • The program is funded by Kingsley Capital Partners, a private equity firm headquartered in London.  The firm has an interesting and illustrious history – Managing Partner Neil Mahapatra, who is overseeing OCT, has led several transactions for Lord Rothschild’s family office.  Mahapatra stated that the kind of research that OCT will carry out is “limited and long overdue”.
  • Adding a bit more star power, CNBC reports that actor Patrick Stewart issued a statement calling the Oxford program “an important step forward for Britain in a field of research that has for too long been held back by prejudice, fear and ignorance.”
  • While the U.K. does not presently allow whole cannabis to be used for medicinal purposes, the cannabinoid cannabidiol (frequently known as CBD) has recently been classified as a medicine.


What’s Up in Weed is not legal or financial advice. It is a blog which is made available by SkyLaw for informational purposes and should not be used as a substitute for professional advice from a lawyer. This blog is subject to copyright and may not be reproduced without our permission.

If you have any questions or would like further information, please contact us at 416-759-5299 or online through We would be delighted to speak with you. © Copyright SkyLaw 2017. All rights reserved. SkyLaw is a registered trademark of SkyLaw Professional Corporation.


Andrea Hill is a corporate and securities lawyer with SkyLaw Professional Corporation in Toronto. Recognized as one of Canada’s leading legal experts in corporate cannabis law, Andrea writes for the Globe and Mail about cannabis laws, and works with a broad variety of clients in the cannabis space, including publicly-listed licensed producers of marijuana, licence applicants, and ancillary businesses such as tech companies focused on the cannabis industry. For more information about Andrea, visit the SkyLaw website here.

–Posted on behalf of Andrea Hill


FULL DISCLOSURE: None of the companies mentioned in this article are clients of EQUITY.GURU

Written By:

Andrea Hill

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