On October 17, 2018, Canada legalized marijuana for recreational use, becoming one of the few countries in the world to have done so. In the US, legalization has proceeded on a state-by-state basis, owing to fundamental differences in the two countries’ systems.
Uncertainty regarding the legal status of investments in the US cannabis industry remain. Though states like California, Colorado, and Oregon have legalized marijuana, in US Federal law it remains prohibited. That leaves investors nervous about the security of their investments in cannabis.
In Canada, there are no such concerns. Marijuana is legal all across the country, and, as we’ll see below, the rules for investing are fairly straightforward. They apply to Canadians and foreign citizens equally and are essentially the same from Vancouver to Halifax.
Who Regulates Investment in Canada?
In Canada, investments, stock exchanges, and brokerages are regulated by the provinces, analogous to state governments in the US. However, to minimize confusion and duplication of effort, the provinces often adopt national guidelines to regulate their practices across the country.
The rules relating to investment in anything (including the cannabis industry), are laid out in National Instrument 45-106, a link to which can be found below. S 1.1 defines “Accredited Investor:”
Canada tends to be quite open to foreign investment. Foreigners face few restrictions, and there are no differences between the rules for Canadian and foreign accredited investors.
Make Sure You Research Ontario Separately!
Ontario is Canada’s biggest province, so it’s entirely possible you’ll be investing here. NI 45-106 has many “except in Ontario” clauses, though the requirements pertaining to individual accredited investors are quite similar. Ontario Securities Commission regulations. S 73.3(1) refers to accredited investors directly here.
It’s a good idea to ensure you meet the requirements for any province you invest in. Check with your advisor or look up the Securities Commission in the relevant province to be sure. But NI 45-106 is the go-to source throughout Canada.
Who Is An “Accredited Investor” In Canada?
According to NI 45-106, an accredited investor (individual) is:
(j) an individual who, either alone or with a spouse, beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $1 000 000,
(j.1) an individual who beneficially owns financial assets having an aggregate realizable value that, before taxes but net of any related liabilities, exceeds $5 000 000,
- (k) an individual whose net income before taxes exceeded $200 000 in each of the 2 most recent calendar years or whose net income before taxes combined with that of a spouse exceeded $300 000 in each of the 2 most recent calendar years and who, in either case, reasonably expects to exceed that net income level in the current calendar year,
- (l) an individual who, either alone or with a spouse, has net assets of at least $5 000 000,
- (m) a person, other than an individual or investment fund, that has net assets of at least $5 000 000 as shown on its most recently prepared financial statements
Remember, this is Canada, so all figures are in Canadian Dollars. There is no formal accreditation process. If you meet the criteria, you may invest in private companies as an individual. In Ontario, the rules are laid out in OSC 45-501, and are almost the same, with the exception of the $5,000,000 net worth exemption. The Ontario policy can be found here.
Crossing the Border for Cannabis?
Now, for a word about crossing the border for cannabis business. Canadians entering the US will typically get a far harder time than Americans going into Canada. That’s because marijuana contravenes US Federal law, which regulates the international border. In Canada, Federal law allows individuals to engage in legal, regulated cannabis commerce. Just don’t bring any with you. The import and export of cannabis remain prohibited in Canada.
So, Who Wants Investors?
If you meet the requirements to be an accredited investor, here’s a list of companies looking for investors, and companies providing investment capital:
The field of cannabis investing is a new frontier. Now that you have the facts about becoming an accredited investor, you can decide if you want to take the next step