In a report published on Monday (March 19) taking stock of the responses obtained regarding the current state of the cannabis industry, the Canadian federal government outlined its plans on preventing the entry of organized crime into the industry.
According to the document, the government is proposing companies to submit detailed financial information, including investors’ financial information, as a way to keep tabs on who is placing money in the cannabis industry during the licensing process.
“This information could then be used in determining whether to refuse to issue or renew a license… the regulations could require regular, ongoing reporting of financial information by [LPs],” the report said.
The government proposed making this step mandatory in the license application stage with Health Canada for cannabis companies. Companies unwilling to share the information could face the removal or denial of a license to handle marijuana legally.
This way, the government argues, could ensure organized crime is not infiltrating the new legal industry.
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The government’s point man on legalizing recreational cannabis, Liberal member of parliament Bill Blair, said they want to ensure the regulations being proposed, meet the objective of enabling a “diverse, competitive legal industry comprising both large and small players across the country, and displacing the existing illegal market.”
According to the report, the government originally proposed a measurement in which any shareholder who owned over 25 percent of an LP, whether public or private, would have to hold a security clearance. The document did not say how this would have been enforced.
However, after consulting with members of the industry, the government admitted it would be a task too complicated to ensure all the investments were legal.
The report said respondents felt the proposed requirement would be too difficult to enforce and that it would be “relatively simple” for illegal forces to structure investments and assets in a way where they would avoid the proposed clearance.
Critics of the government’s crusade on cannabis have asked for it to take a tougher stance on the potential for illegal forces to support the planned legal cannabis operations across Canada.
The Globe and Mail reported an undisclosed senior government official said Ottawa wants “a clearer indication of who has controlling interests in the companies” operating in the legalized cannabis market.
Trina Fraser, a partner at Brazeau Seller Law with a focus on cannabis law, told The Globe and Mail she is concerned as to whether this proposal will be a “defined set of rules that applies to everybody,” or if the government will “reserve the right to start asking questions and probing if and when they that they want to.”
Investors should remember that, as it stands, these are proposals from the Canadian government. That being said, it will be critical for the market to follow the regulations mandated by the authorities in the Canadian marijuana industry.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.