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Marijuana is weighed at The Dispensary, a medical marijuana dispensary in Vancouver, on Feb. 5, 2015.

Jonathan Hayward/The Canadian Press

Canadian securities regulators have issued a warning to investors about claims being made by would-be medical marijuana companies, saying a review has concluded many are providing deficient information when announcing plans to join the sector.

Securities commissions in British Columbia, Alberta, Ontario and Quebec teamed up to review press releases issued by 62 publicly traded companies announcing plans to become marijuana producers under a new federal program that opened last April. The program will permit private-sector companies to grow and sell marijuana under license from Health Canada.

The regulators said 25 issuers "raised serious investor protection concerns" with announcements that were unbalanced and omitted key information, including their stage of development and the licensing process required by Health Canada. Most of them were at an early stage in their business development, with many having done virtually nothing to set up a marijuana business.

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"In general, we found that issuers' disclosures was often unbalanced and promotional in nature," the review concludes.

"While the benefits associated with involvement in the medical marijuana industry were often discussed, these discussions were not consistently accompanied by disclosure about the risks, uncertainties, cost implications and time required before the issuer can begin licensed operation."

The study comes after a Globe and Mail investigation detailed problems with disclosures provided by CEN Biotech, which was seeking a Health Canada license to open Canada's biggest medical marijuana facility. Health Canada notified the company on Feb. 13 that it intended to reject its application, but the company was given 20 days to respond.

CEN is owned by Michigan-based Creative Edge Nutrition Inc., which trades on the U.S. over-the-counter market and is not directly regulated by Canadian securities regulators. CEN faced accusations of making inaccurate statements to investors, including claims the company had been licensed or was on the verge of being licensed by Health Canada, when it was not.

The broader sector review by Canadian regulators found 72 per cent of companies that announced plans to get into the medical marijuana field were previously junior mining companies planning to convert to a new business, while a further 8 per cent were oil and gas companies. The remaining 20 per cent were technology and agriculture companies, or were new or formerly inactive companies.

The report said regulators observed that many companies saw a jump in their share price on announcing plans to enter the medical marijuana field, "even in cases where little, or any, substantive information was provided to the public about their prospective plans."

Bill Rice, chair of the Alberta Securities Commission, said the disclosures in general are unacceptable for investors.

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"The level of deficiency in issuers' disclosure is unacceptable as investors need comprehensive, balanced information to understand the business changes being proposed by these issuers," Mr. Rice said in a statement.

U.S. marijuana industry analyst Alan Brochstein of 420 Investor, who covers Canadian marijuana companies, said the whole industry sector is new, and there are some start-up companies with "scary" disclosures.

He said he focuses on larger Canadian companies that have Health Canada licenses or trade on the TSX Venture exchange because they are more advanced in their business and have better disclosure practices.

"There's just a ton of risk in this whole industry, but I feel like the disclosures are pretty good for those [larger] companies," he said. "When you get a little bit deeper into these mining companies, I think that's where the bulk of these securities regulators are focused. Not so much on the ones that are already licensed."

He said the fact Canadian regulators are closely scrutinizing the new sector "actually gives me more confidence," adding he has reported particularly worrisome companies to U.S. regulators and has gotten little response.

"From my vantage point, I don't look at all these little mining companies that are marijuana company wannabes, but the ones I look at, I think the disclosures are pretty good, and they're much better than they are in the United States."

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The report said regulators required 92 per cent companies it reviewed to issue new statements to investors to clarify their earlier press releases.

Companies were asked to provide clear discussion of their stage of entry into the field, including what work still needed to be done before a revenue-generating licensed business could begin operation, including whether a license application had been submitted and its current status.

The securities commissions said companies also need to disclose whether any approvals from the company's board or shareholders are still required to switch into a new industry sector or proceed with the proposed business plan.

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