Cannabis key investors: Cultivation, processing and sale for medical purposes licences

On this page

• Foreword and disclaimer
• Who needs to report
• Identifying your key investors
• Requirements for those not listed on a published market
• Requirements for those listed on a published market
• Contact us

This page applies to the following cannabis licences:

• micro-cultivation, standard cultivation and nursery
• micro-processing and standard processing
• sale for medical purposes

Foreword and disclaimer

Foreword

The Cannabis Act and section 241 of the Cannabis Regulations allow Health Canada to collect information on some applicants' and licence holders' key investors. These provisions set out the requirements on record keeping and reporting.

Key investor reporting supports Health Canada's ability to protect the integrity of the strict legal framework for the cannabis industry, and helps to minimize the risk of cannabis being diverted to an illicit market. It also helps reduce opportunities for organized crime to infiltrate the legal industry through financial investments.

Disclaimer

You need to read these pages along with the Cannabis Act and the Cannabis Regulations. If there are differences, the Act and its Regulations are correct.
If there are differences between the Cannabis Tracking and Licensing System (CTLS) and these pages, these pages are correct.

When reading the Cannabis Regulations, refer to the definitions in subsection 1(1). They'll be used in these pages as well as all other documents for cannabis applicants and licence holders.

Who needs to report

Applicants and licence holders must determine whether they have key investors. You'll need to either submit a Key investor report, or an attestation indicating why you don't need to submit it in the CTLS.
Most cannabis applicants and licence holders don't have equity securities listed on a published market, and therefore need to report on their key investors.

Definition of a published market

A published market is a market inside or outside Canada where equity securities are traded, if the prices of those securities are regularly published:

• electronically
• in a newspaper
• in a financial or business publication of general circulation

The most common example is a stock exchange.

Not listed on a published market

If your equity securities (such as shares) or a class of equity securities aren't listed on a published market, you must submit a Report on your key investors. Most cannabis applicants and licence holders will have at least 1 key investor and will need to report on them.

If your parent (owning) company has equity securities listed on a published market, but yours doesn't, you're still required to report on your key investors.

Listed on a published market

If your equity securities (such as shares) or a class of equity securities are listed on a published market, this page doesn't apply to you. You only need to submit a Key investor attestation. You don't need to submit a Report on your key investors.

Identifying your key investors

Before identifying your key investors, think about who your investors are.

Who's considered an investor

An investor is a person or organization that puts money or goods into something to make a profit or get an advantage.
An applicant or licence holder usually requires more than 1 investor. Even smaller cannabis businesses are likely to have investors. However, an investor isn't necessarily a big bank. Investors could include:

• banks
• founders
• financial cooperatives
• family members or friends

Who's considered a key investor

A key investor is someone who exercises, or is in a position to exercise, direct or indirect control over the licence holder by:

• having provided money, goods or services directly or indirectly to the holder
• holding an ownership interest or other right or interest in relation to the holder's business or, if the holder is an organization, the organization

As an applicant or licence holder, you need to look at each person, corporation or organization that has invested in your business. You'll assess whether they exercise, or are in a position to exercise, direct or indirect control over your business. While the amount or value is important to consider, you need to look at more than the dollar value of their investment.

Investment of substantial money, goods or services

We use the term substantial because the ability to exercise control will depend on the size of your business and its structure. Not every investor who has provided money, goods or services will have direct or indirect control.

Investors who provide money, goods or services may be key investors. You should consider the dollar value of a transaction relative to the impact it makes on your business. $100,000 may be a lot for a small, family-run micro-cultivator, but be of little consequence to a large standard licence holder.

Investors with large share percentages may be key investors. Depending on your business's share structure, a key investor could exercise control with any percentage of ownership. It depends on the types of shares and any rights provided in the shareholder agreement. Even an investor with less than 10% of the shares could still exercise control.

Other considerations

You should consider the other ways an investor may exercise control. It can include, but isn't limited to these examples:

• you owe a large debt to them that could be repayable on demand
• they hold a casting vote as part of a shareholder agreement
• they have the ability to influence your operations as a result of their investment
• they can require you to sign contracts that result in economic dependence on a supplier or customer
• they can require you to sign contracts that require you to pay more for goods or services than you would have
• they could control your employees or site personnel, such as through your security, human resources, or payroll
• they have the ability to elect or choose the majority of the board of directors
• they are the sole beneficiary of a substantial amount of shares held in trust for them

An investor may be able to indirectly exercise control over you through:

• family relationships
• friendships

This doesn't automatically make them a key investor; the investor must be able to control because:

• they provided you with money, goods or services directly or indirectly
• they hold an ownership interest or other right or interest in relation to your business or, if you are an organization, the organization

Examples of key investors

Below are some examples of who would be considered key investors. These examples take into consideration the points from above. Use them to help guide your thinking on who might be a key investor for you.

• They have provided you land, rent-free, for your cultivation business. This investor can end the land use agreement at any time and stop you from cultivating.
• They provided you a $250,000 loan with a 5-year term at 10% interest. This loan has the condition that you hire the investor's child in a role with direct control, such as the quality assurance person. This investor has indirect control through a family relationship.
• They provided you money in exchange for 10% of the common shares of your business. The common shares give them voting rights, and these are a sufficient number of shares to allow them to have control over your business.
• They provided you a loan. There's a condition on the loan that converts the debt into a controlling interest of voting shares (more than 50%). It gives them the deciding voice in meetings and control over the business' direction.
• They got special voting rights through their investment. The investor can influence important decisions, such as when your business could be dissolved or merged. This gives this investor control, even without owning a substantial number of shares.
• They provided you a loan. As part of your agreement, you must buy goods from a given business, even if their prices are higher than market value.

Requirements for those not listed on a published market

Important: If your organization's equity securities are not listed on a published market but you don't have any key investors, follow the Requirements for applicants and licence holders listed on a published market. However, if you are a licence holder and your only key investor ceased to be a key investor in the reporting period, then you need to submit a report with only Section A and Part 8 of Section B completed.

Applicants

Record keeping

There's no record keeping requirement for applicants. However, we recommend following What to include in your cannabis key investor records. This will help you when you need to complete your report on your key investors during the application process.

Reporting

Applicants are required to submit a report on their key investors during the application process. Refer to How to submit your Key investor report for more information.

Licence holders

Record keeping

Licence holders must maintain records for each of their key investors. Refer to Cannabis key investor record keeping for more information on what your records need to contain.

Reporting

As a licence holder, there are 3 moments you need to submit a Key investor report:

• for your annual reporting
• for correcting any errors in a previously submitted report
• when you renew your licence

Refer to How to submit your key investor report for more information.

Requirements for those listed on a published market

If your equity securities, or a class of them, are listed on a published market, you need to submit a Key investor attestation instead of a report.
In addition, if you do not have any key investors, you need to submit a Key investor attestation instead of a Key investor report. However, if you are a licence holder and your only key investor ceased to be a key investor in the reporting period, then you need to submit a report with only Section A and Part 8 of Section B completed.

The attestation is a document signed by the responsible person clearly indicating that your equity securities are listed on a published market, or that you don't have any key investors.

Applicants

You need to upload your Key investor attestation on the "Key investor report" page in the CTLS when you apply for a new licence. Name your document "KeyInvestor_APP-#_Attestation _YYYY-MM-DD.PDF".

Licence holders

You need to upload your Key investor attestation on the "Key investor report" page in the CTLS:

• For your annual report: Before January 31st of each year, select "Annual" as your "Reason for report"
• When you renew your licence: If you need to upload key investor information during your renewal, select "Renew" as your "Reason for report"

Name your document "KeyInvestor_LIC-#_Attestation _YYYY-MM-DD.PDF".

Contact us

If you have questions about identifying your key investors or how to keep records or submit your report, email licensing-cannabis-licences@hc-sc.gc.ca. The subject line of the email should be either:

• "Key investor reporting for applicant APP#"
• "Key investor reporting for licence holder LIC#"