Law Times

Page 10 January 15, 2018 • Law Times www.lawtimesnews.com Heightened stock market interest in cannabis persists BY SHANNON KARI For Law Times E arlier this month, some online brokerages in Canada received numer- ous complaints from cus- tomers about delays in placing trades and temporary outages. An unexpected spike in trad- ing volume was blamed in large part on trading in the shares of publicly listed cannabis-related stocks. On one occasion, two days be- fore Jan. 1, 2018, the Investment Industry Regulatory Organiza- tion of Canada halted trading in four of these stocks for about 10 minutes because of significant price swings in the shares. The heavy volume and sud- den swings in share price in these stocks has not been an iso- lated event in recent months. Every bit of news related to the legalization of cannabis for recreational use in Canada can have an immediate impact on publicly traded companies because of the belief there are significant trading profits to be made. Even an interview that Prime Minister Justin Trudeau gave to a Quebec television network in December, where he suggested that July was not a set date for marijuana legalization, resulted in a one-day drop in cannabis company shares. The declines have been tem- porary, however. Shares in some of the larger licensed producers in the coun- try have tripled in value over the past 12 months. For some companies, the in- creases have been even greater. Last fall, the Smith Falls, Ont.-based-Canopy Growth Corporation announced that Constellation Brands had ac- quired a nearly 10-per-cent stake in the company for $245 million. Constellation is a large Unit- ed States-based wine, beer and spirits producer and distributor, with brands that include Co- rona. The heightened stock market interest as well as investments from major U.S. companies is driven by the projected size of the cannabis market in this country. A report issued by Statistics Canada last month concluded that the "implied value" of can- nabis sales in 2015 (including illegal sales) was between $5 bil- lion and $6 billion. In comparison, the beer market was $9.2 billion in Can- ada that year and wine revenues were $7 billion. Once it is legal- ized, the totals could grow even higher. "I think it is a very frenzied market right now," says Mindy Gilbert, mergers and acquisi- tions partner at Davies Ward Phillips & Vineberg LLP in To- ronto. "There is a lot of speculation about consolidation," she adds. For publicly traded compa- nies in the cannabis industry, the increased spotlight on the sector could also result in a greater focus by regulators such as Health Canada and, in this province, the Ontario Securities Commission. "Whenever there is a bubble, the [securities] regulators will look at disclosure," says Gilbert. The increased focus will require good corporate gov- ernance practices, says Cheryl Reicin, partner at Torys LLP. "Running a company in a highly regulated industry re- quires a lot of expertise. There will be a need for strong man- agement," says Reicin, who is chairwoman of the life science practice at the firm. "The entrepreneurs who have done well here have had to move quickly. These compa- nies have ballooned overnight. Now is the time to catch up" in strengthening corporate gover- nance, Reicin says. That includes appointing truly independent directors to boards and ensuring there is on- going disclosure of any material changes for a company. In addition to the cannabis sector being highly regulated, another factor is that it is effec- tively a "brand new industry," says Reicin. "A lot of the volatility will de- pend on how it rolls out. Unlike biotech, where you don't know if you have a blockbuster, this is not as speculative, other than who is going to be the winner. It will depend on the ability to implement," Reicin says. Cannabis companies are "a bit of a mix" of both the phar- maceutical and agricultural in- dustries, Gilbert suggests. The agricultural side also exposes companies to litigation risks, such as class actions, if there is a product recall issued by Health Canada because of the use of pesticides, for ex- ample. At the same time, when it comes to making public infor- mation about the product itself and not the business side of a company, Gilbert says, what must be disclosed is not entirely clear. "There are no special rules that permit us to compare with- in the industry," she says. Matt Maurer, partner at FOCUS Cheryl Reicin says cannabis companies that have grown quickly need to strengthen corporate governance. See Uncertainty, page 12 I think it is a very frenzied market right now. Mindy Gilbert ONTARIO LAWYER'S PHONE BOOK 2018 Ontario Lawyer's Phone Book is your best connection to legal services in Ontario with more than 1,400 pages of essential legal references. You can depend on the accuracy of this trusted directory that includes the most up-to-date names, phone numbers, mailing addresses and emails so you don't have to search anywhere else. More detail and a wider scope of legal contact information for Ontario: • Over 26,800 lawyers listed • Over 8,500 law firms and corporate offices listed • Fax and telephone numbers, e-mail addresses, office locations and postal codes Includes lists of: • Federal and provincial judges • Federal courts • Ontario courts and services • Small claims courts • The Institute of Law Clerks of Ontario Order your copy today. Visit www.store.thomsonreuters.ca or call 1-800-387-5164 for a 30-day, no risk evaluation Perfectbound Published December each year On subscription $85 One time purchase $88.50 L7798-7858 Multiple copy discounts available Plus applicable taxes and shipping & handling. (prices subject to change without notice) Your instant connection to ONTARIO'S LEGAL NETWORK Untitled-5 1 2018-01-09 3:18 PM © 2017 Thomson Reuters Canada Limited 00248VQ-89974-NP Available risk-free for 30 days Order online: store.thomsonreuters.ca | Call Toll-Free: 1-800-387-5164 | In Toronto: 416-609-3800 Print + ProView Order # L7798-7974BE-65203 $194 Softcover + ProView December 2017 approx. 1420 pages 978-0-7798-7949-6 Annual volumes supplied on standing order subscription Multiple copy discounts available ProView only Order # A00826-18ON-65203 $162 Print only Order # L7798-7949-65203 $162 Shipping and handling are extra. Price(s) subject to change without notice and subject to applicable taxes. A single-source reference for real estate practitioners and property managers across Ontario, this work provides the latest developments in the legislation and case law impacting residential and commercial tenancies. New in this edition Updates include amendments made by the following: • All Families are Equal Act (Parentage and Related Registrations Statute Law Amendment), 2016, S.O. 2016, c. 23 • Promoting Affordable Housing Act, 2016, S.O. 2016, c. 25 • Rental Fairness Act, 2017, S.O. 2017, c. 13 • Supporting Children, Youth and Families Act, 2017, S.O. 2017, c. 14 • Ontario Regulation 241/16 Recent and significant cases discussed in new annotations include: • 77267 Ontario Ltd. v. Victoria Strong Manufacturing Corp. (2017 Ont. S.C.) • Toronto Dominion Bank v. Hosein (2016 Ont. C.A.) • Aghazarian v. Cena (2017 Ont. S.C.) • Edwards v. Waham (2017 Ont. S.C.) • Trust Construction Corporation v. McKie (2017 Ont. S.C.) • 2295477 Ontario Inc. v. Cromwell (2017 Ont. S.C.) • El Sayed v. City of Ottawa and OCHC (2017 Ont. S.C.) • Williams v. The Corporation of the City of Toronto (2016 Ont. C.A.) The 2018 edition also features new or revised rules, policy documents, guidelines and forms of Ontario's Landlord and Tenant Board. A portable source for landlord and tenant law New Edition The 2018 Annotated Ontario Landlord and Tenant Statutes Mavis J. Butkus

• Cover