Canadian Lawyer

www.canadianlawyermag.com 41 "There was a lot of hype in the financial press, a bunch of hype in the market, and, unfortunately, some of that hype ended up being misplaced." Linda Fuerst, Norton Rose Fulbright Canada LLP sion publication in November 2018 — "Clear- ing the Air about Cannabis Investing" — which found that investing rates didn't vary based on reported risk tolerance or financial knowledge. The same report notes that, at that time, indus- try insiders and analysts were concerned about stock prices racing ahead of their growth pros- pects — a worry that's been borne out. Another 2018 report from Statistics Canada attempted to project the future market for le- gal cannabis in Canada and predicted the sale of illegal cannabis would account for only 24 per cent of the market. However, a subsequent report in 2019 indicated that only 28 per cent of Canadians were obtaining all their cannabis from a legal source. "The predictions about the legal cannabis market were inflated and might have caused part of the difficulties that we've seen," Fuerst says. "The picture they painted of expected consumer interest in the purchase of legal can- nabis might have been a bit too rosy with the benefit of hindsight." She believes the government, particularly at the federal level, played a role in the cur- rent situation by rushing to get the industry moving forward. The time between the en- actment of the cannabis legislation in June 2018 and when it came into effect in October gave cannabis producers only four months to ! "# $ %&'' "( ) * "' " +& * ,,-,$./01213404, 5# 0670768 # get ready to go to market, which added more pressure, Fuerst says. They struggled initially to provide enough product, but, over time, it emerged there was over supply because there weren't enough retail outlets to meet con- sumer demand. "Those sorts of things did pose addition- al challenges, and I'm not sure all of that could reasonably have been foreseen." Fuerst says she doesn't think the govern- ment or even the securities regulators an- ticipated how much of a challenge the new industry would pose. Thinking of other new technologies — such as crypto-currencies — and issues that emerged in that area can be a useful parallel, she says. Over the past 12 months, several Canadian cannabis companies have been named as de- fendants in securities class actions both in Can- ada and the United States. When listing on the CANNABIS INVESTOR RISK FACTORS* Nearly one in four cannabis investors reported spending $10,000 or more on their investments. Cannabis investing rates did not vary based on reported risk tolerance or financial knowledge Cannabis investors tended to choose undiversified investments in the sector Three in 10 invest in the U.S. despite continuedlegal uncertainty about its cannabis industry U.S. exchange, Fuerst advises companies think about disclosure obligations and increased litigation risk. Adequate insurance coverage *Source: Ontario Securities Commission

• Cover