Cresco Labs Inc. and Canaccord Genuity Corp.
Headnote
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Application for exemptive relief to permit issuer and underwriters, acting as agents for the issuer, to enter into equity distribution agreements to make "at the market" (ATM) distributions of subordinate voting shares over the facilities of a marketplace in Canada -- ATM distributions to be made pursuant to shelf prospectus procedures in Part 9 of NI 44-102 Shelf Distributions -- issuer will issue a press release and file agreements on SEDAR -- application for relief from prospectus delivery requirement -- delivery of prospectus not practicable in circumstances of an ATM distribution -- relief from prospectus delivery requirement has effect of removing two-day right of withdrawal and remedies of rescission or damages for non-delivery of the prospectus -- application for relief from certain prospectus form requirements -- relief granted to permit modified forward-looking certificate language -- relief granted on terms and conditions set out in decision document -- decision will terminate 25 months after the issuance of a receipt for the shelf prospectus. Decision and application also held in confidence by decision makers until the earlier of the entering into of an equity distribution agreement, waiver of confidentiality or 90 days from the date of the decision.
Applicable Legislative Provisions
Securities Act, R.S.O. 1990, c.S.5, as am., ss. 71 and 147.
Applicable Ontario Rules
National Instrument 44-101 Short Form Prospectus Distributions, s. 8.1 and Item 20 of Form 44-101F1.
National Instrument 44-102 Shelf Distributions, s. 6.7, Part 9, s 11.1, s. 2.2 of Part 2 of Appendix A.
National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
October 22, 2019
IN THE MATTER OF THE SECURITIES LEGISLATION OF BRITISH COLUMBIA AND ONTARIO (the Jurisdictions) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CRESCO LABS INC. (the Issuer) AND CANACCORD GENUITY CORP. (the Agent and, together with the Issuer, the Filers)
DECISION
Background
¶ 1 The securities regulatory authority or regulator in each of the Jurisdictions (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdictions (the Legislation) for the following relief (the Exemption Sought):
(a) that the requirement that a dealer, not acting as agent of the purchaser, who receives an order or subscription for a security offered in a distribution to which the prospectus requirement applies, send or deliver to the purchaser the latest prospectus (including the applicable prospectus supplement(s) in the case of a base shelf prospectus) and any amendment to the prospectus (the Prospectus Delivery Requirement) does not apply to the Agent or any other registered investment dealer acting on behalf of the Agent as a selling agent (each a Selling Agent) in connection with any at-the-market distribution (as defined in National Instrument 44-102 Shelf Distributions (NI 44-102)) (an ATM Distribution) of subordinate voting shares of the Issuer (Subordinate Voting Shares) in Canada under an equity distribution agreement (the Equity Distribution Agreement) to be entered into between the Issuer and the Agent;
(b) that the requirements to include each of the following in a prospectus supplement, or in any amendment to a prospectus supplement, do not apply to a prospectus supplement of the Issuer (the Prospectus Supplement) or in any amendment thereto in respect of an ATM Distribution:
(i) a forward-looking issuer certificate in the form specified in section 2.1 or section 2.4, as applicable, of Appendix A to NI 44-102;
(ii) a forward-looking underwriter certificate in the form specified by section 2.2 or section 2.4, as applicable, of Appendix A to NI 44-102; and
(iii) a statement respecting purchasers' statutory rights of withdrawal and remedies of rescission or damages in substantially the form prescribed in Item 20 of Form 44-101F1 Short Form Prospectus;
(collectively, the Prospectus Form Requirements).
The Decision Makers have also received a request from the Filers for a decision that the application and this decision be kept confidential and not made public until the earliest of (i) the date on which the Filers enter into the Equity Distribution Agreement, (ii) the date on which the Filers jointly advise the Decision Makers that there is no longer any need for the application and this decision to remain confidential, and (iii) the date that is 90 days after the date of this decision (the Confidentiality Relief).
Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a dual application):
(a) the British Columbia Securities Commission is the principal regulator for this application;
(b) the Filers have provided notice that section 4.7(1)(c) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador; and
(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.
Interpretation
¶ 2 Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.
Representations
¶ 3 This decision is based on the following facts represented by the Filers:
The Issuer
1. the Issuer is incorporated under the laws of the Province of British Columbia with its head office located in Chicago, Illinois and its registered office is located in Vancouver, British Columbia;
2. the Issuer is a reporting issuer in each province of Canada and is in compliance in all material respects with the requirements under applicable securities legislation and is not in default of securities legislation in any jurisdiction of Canada;
3. the Subordinate Voting Shares are listed on the Canadian Securities Exchange (the CSE);
The Agent
4. the Agent is a corporation incorporated under the laws of Ontario with its head office in Vancouver, British Columbia;
5. the Agent is registered as an investment dealer under the securities legislation of each province of Canada, is a member of the Investment Industry Regulatory Organization of Canada, and is a registered dealer with the CSE;
6. the Agent is not in default of any requirements under applicable securities legislation in any of the jurisdictions of Canada;
Proposed ATM Distributions
7. the Issuer has filed a short form base shelf prospectus in each province of Canada on July 25, 2019, qualifying the distribution from time to time of Subordinate Voting Shares, debt securities, subscription receipts, warrants and units comprised of the foregoing (the Shelf Prospectus); the Shelf Prospectus constitutes an "unallocated shelf" within the meaning of Part 3 of NI 44-102; the Issuer has included in the Shelf Prospectus a forward-looking certificate of the Issuer in the form prescribed by section 1.1 of Appendix A of NI 44-102;
8. subject to mutual agreement on terms and conditions, the Filers propose to enter into the Equity Distribution Agreement for the purpose of ATM Distributions involving the periodic sale of Subordinate Voting Shares by the Issuer through the Agent, as agent, under the base shelf prospectus procedures prescribed by Part 9 of NI 44-102;
9. if the Equity Distribution Agreement is entered into, the Issuer will immediately:
(a) issue and file a news release under section 3.2 of NI 44-102 announcing the Equity Distribution Agreement and indicating that the Shelf Prospectus and the Prospectus Supplement have been filed on SEDAR, and specifying where and how purchasers of Subordinate Voting Shares under the applicable ATM Distribution may obtain copies; and
(b) file a copy of the Equity Distribution Agreement on SEDAR;
10. prior to making any ATM Distributions, the Issuer will have filed the Prospectus Supplement in each of the provinces of Canada describing the terms of the applicable ATM Distribution, including the terms of the Equity Distribution Agreement, and otherwise supplementing the disclosure in the Shelf Prospectus;
11. the Equity Distribution Agreement will limit the number of Subordinate Voting Shares that the Issuer may issue and sell under any ATM Distribution thereunder to an amount not to exceed 10% of the aggregate market value of the outstanding Subordinate Voting Shares, such aggregate market value calculated in accordance with section 9.2 of NI 44-102, as at the last trading day of the month before the month in which the first distribution is made;
12. the Issuer will conduct ATM Distributions only through the Agent, as agent, directly or through a Selling Agent, and only through (i) the CSE or (ii) any other recognized Canadian "marketplace" within the meaning of National Instrument 21-101 Marketplace Operation upon which the Subordinate Voting Shares are listed, quoted or otherwise traded (each, including the CSE, a Marketplace);
13. the Agent will act as the sole agent of the Issuer in connection with an ATM Distribution directly or through one or more selling Agents on the CSE or another Marketplace and will be paid an agency fee or commission by the Issuer in connection with such sales; if sales are effected through a Selling Agent, the Selling Agent will be paid a seller's commission for effecting the trades on behalf of the Agent; the Agent will sign an agent's certificate, in the form set out in paragraph 30 below, in the Prospectus Supplement;
14. a purchaser's rights and remedies under applicable securities legislation against the Agent, as agent of an ATM Distribution through the CSE or another Marketplace, will not be affected by a decision to effect the sale directly or through a Selling Agent;
15. the aggregate number of Subordinate Voting Shares sold on all Marketplaces under an ATM Distribution on any trading day will not exceed 25% of the trading volume of the Subordinate Voting Shares on all Marketplaces on that day;
16. the Equity Distribution Agreement will provide that, at the time of each sale of Subordinate Voting Shares under an ATM Distribution, the Issuer will represent to the Agent that the Shelf Prospectus, as supplemented by the Prospectus Supplement, including the documents incorporated by reference in the Shelf Prospectus and any applicable amendment or supplement to the Shelf Prospectus or Prospectus Supplement (together, the Prospectus), contains full, true and plain disclosure of all material facts relating to the Issuer and the Subordinate Voting Shares; the Issuer will, therefore, be unable to proceed with sales under an ATM Distribution when it is in possession of undisclosed information that would constitute a material fact or a material change in respect of the Issuer or the Subordinate Voting Shares;
17. during the period after the date of the Prospectus Supplement and before the termination of any ATM Distribution, if the Issuer disseminates a news release disclosing information that, in the Issuer's determination, constitutes a "material fact" (as defined in the Legislation), the Issuer will identify such news release as a "designated news release" for the purposes of the Prospectus; this designation will be made on the face page of the version of such news release filed on SEDAR (any such news release, a Designated News Release); the Prospectus Supplement will provide that any such Designated News Release will be deemed to be incorporated by reference into the Prospectus; a Designated News Release will not be used to update disclosure in the Prospectus by the Issuer in the event of a "material change" (as defined in the Legislation);
18. if, after the Issuer delivers a notice to the Agent directing the Agent to sell Subordinate Voting Shares on the Issuer's behalf under the Equity Distribution Agreement (a Sell Notice), the sale of the Subordinate Voting Shares specified in the Sell Notice, taking into consideration prior sales under previous ATM Distributions, would constitute a material fact or material change, the Issuer will suspend sales under the Equity Distribution Agreement until either: (i) it has disseminated and filed a Designated News Release (in the case of a material fact) or a material change report (in the case of a material change), as applicable, or amended the Prospectus; or (ii) circumstances have changed such that the sales would no longer constitute a material fact or material change;
19. in determining whether the sale of the Subordinate Voting Shares specified in a Sell Notice would constitute a material fact or material change, the Issuer will take into account a number of factors, including, without limitation: (i) the parameters of the Sell Notice, including the number of Subordinate Voting Shares proposed to be sold and any price or timing restrictions that the Issuer may impose with respect to the particular ATM Distribution, (ii) the percentage of outstanding Subordinate Voting Shares that the number of Subordinate Voting Shares proposed to be sold under the Sell Notice represents, (iii) sales under prior Sell Notices, (iv) trading volume and volatility of the Subordinate Voting Shares, (v) recent developments in the business, operations or capital of the Issuer and (vi) prevailing market conditions generally;
20. it is in the interest of the Filers to minimize the market impact of sales under an ATM Distribution; therefore, the Agent will closely monitor the market's reaction to trades made on the CSE or any other Marketplace under an ATM Distribution in order to evaluate the likely market impact of future trades; the Agent has experience and expertise in managing sell orders to limit downward pressure on trading prices; if the Agent has concerns as to whether a particular Sell Notice delivered by the Issuer may have a significant effect on the market price of the Subordinate Voting Shares, the Agent will recommend against effecting the trade under the applicable Sell Notice at that time;
Disclosure of Subordinate Voting Shares Sold
21. for each financial period in which the Issuer conducts an ATM Distribution, it will disclose in its annual and interim financial statements and related management discussion and analysis filed on SEDAR the number and average selling price of Subordinate Voting Shares distributed under the ATM Distribution, and the gross proceeds, commission and net proceeds for such sales;
Prospectus Delivery Requirement
22. under the Prospectus Delivery Requirement, a dealer effecting a trade of securities offered under a prospectus is required to deliver a copy of the prospectus (including the applicable prospectus supplement(s) in the case of a shelf prospectus) to the purchaser within prescribed time limits;
23. delivery of a prospectus is not practicable in the circumstances of an ATM Distribution, as neither the Agent nor a Selling Agent effecting the trade will know the identity of the purchasers;
24. although purchasers under an ATM Distribution would not physically receive a printed prospectus, the Prospectus will be filed and readily available electronically via SEDAR to all purchasers under ATM Distributions; as stated in paragraph 9 above, the Issuer will also issue a news release that specifies where and how copies of the Prospectus can be obtained;
25. the liability of an issuer or an underwriter (or others) for a misrepresentation in a prospectus under the civil liability provisions of the Legislation will not be affected by the grant of an exemption from the Prospectus Delivery Requirement, because purchasers of securities offered by a prospectus during the period of distribution have a right of action for damages or rescission, without regard to whether or not the purchaser relied on the misrepresentation or in fact received a copy of the prospectus;
Withdrawal Right and Right of Action for Non-Delivery
26. under the Legislation, an agreement of purchase and sale in respect of a distribution to which the prospectus requirement applies is not binding on the purchaser if the dealer from whom the purchaser purchases the security receives, not later than midnight on the second day (exclusive of Saturdays, Sundays and holidays) after receipt by the purchaser of the latest prospectus or any amendment to the prospectus, a notice in writing that the purchaser does not intend to be bound by the agreement of purchase (the Withdrawal Right);
27. under the Legislation, a purchaser of securities to whom a prospectus was required to be sent or delivered in compliance with the Prospectus Delivery Requirement, but was not so sent or delivered, has a right of action for rescission or damages against the dealer who did not comply with the Prospectus Delivery Requirement (the Right of Action for Non-Delivery);
28. neither the Withdrawal Right nor the Right of Action for Non-Delivery is workable in the context of an ATM Distribution because of the impracticability of delivering the Prospectus to a purchaser of Subordinate Voting Shares thereunder;
Modified Certificates and Statements
29. to reflect the fact that an ATM Distribution is a continuous distribution, the Prospectus Supplement and any amendment thereto will include the following issuer certificate (with appropriate modifications in respect of the filing of an amendment prescribed by section 2.4 of Appendix A to NI 44-102), such issuer certificate to supersede and replace the issuer certificate in the Shelf Prospectus solely with regard to the ATM Distribution:
The short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, as of the date of a particular distribution of securities offered by the prospectus, will, as of that date, constitute full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this prospectus supplement, as required by the securities legislation of each of the provinces of Canada.
30. to reflect the fact that an ATM Distribution is a continuous distribution, the Prospectus Supplement and any amendment thereto will include the following underwriter certificate (with appropriate modifications in respect of the filing of an amendment prescribed by section 2.4 of Appendix A to NI 44-102):
To the best of our knowledge, information and belief, the short form prospectus, together with the documents incorporated in the prospectus by reference, as supplemented by the foregoing, as of the date of a particular distribution of securities offered by the prospectus, will, as of that date, constitute full, true and plain disclosure of all material facts relating to the securities offered by the prospectus and this prospectus supplement, as required by the securities legislation of each of the provinces of Canada.
31. a different statement of purchasers' rights than that required by the Legislation is necessary so that the Prospectus will accurately reflect the relief granted from the Prospectus Delivery Requirement; accordingly, the Prospectus Supplement will state the following, with the date reference completed:
Securities legislation in certain of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities and with remedies for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to securities purchased by a purchaser and any amendment are not delivered to the purchaser, provided that the remedies are exercised by the purchaser within the time limit prescribed by securities legislation. However, purchasers of Subordinate Voting Shares under an at-the-market distribution will not have any right to withdraw from an agreement to purchase the Subordinate Voting Shares and will not have remedies of rescission or, in some jurisdictions, revision of the price, or damages for non-delivery of the prospectus, because the prospectus, prospectus supplements relating to the Subordinate Voting Shares purchased by the purchaser and any amendments thereto will not be delivered as permitted under a decision document dated •, 2019 and granted under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions.
Securities legislation in certain of the provinces of Canada also provides purchasers with remedies for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to securities purchased by a purchaser and any amendment contain a misrepresentation, provided that the remedies are exercised by the purchaser within the time limit prescribed by securities legislation. Any remedies under securities legislation that a purchaser of the Subordinate Voting Shares under an at-the-market distribution by the Corporation may have against the Corporation or the Agent for rescission or, in some jurisdictions, revision of the price, or damages if the prospectus, prospectus supplements relating to the Subordinate Voting Shares purchased by the purchaser and any amendment contain a misrepresentation remain unaffected by the non-delivery of the prospectus and the decision referred to above.
Purchasers should refer to any applicable provisions of the securities legislation of the purchaser's province and the decision referred to above for the particulars of their rights or consult with a legal advisor.
32. the Prospectus Supplement will disclose that, in respect of ATM Distributions, the statement prescribed in section 31 above supersedes and replaces the statement of purchasers' rights contained in the Shelf Prospectus; and
33. the Issuer has not yet publicly announced its intention to enter into the Equity Distribution Agreement; premature disclosure of this intention may have an adverse effect on the Issuer.
Decision
¶ 4 Each of the Decision Makers is satisfied that this decision meets the test set out in the Legislation for the Decision Maker to make the decision.
The decision of the Decision Makers under the Legislation is that the Exemption Sought is granted, provided that:
(a) during the 60-day period ending not earlier than 10 days prior to the commencement of an ATM Distribution, the Subordinate Voting Shares have traded, in total, on one or more Marketplaces, as reported on a consolidated market display:
(i) an average of at least 100 times per trading day; and
(ii) with an average trading value of at least $1,000,000 per trading day;
(b) the Issuer makes the disclosure described in sections 21, 29, 30, 31 and 32; and
(c) the Issuer complies with the representations in sections 2, 9, 10, 11, 12, 15, 16, 17, 18, 19 and 29; and
(d) the Agent complies with the representations in sections 4, 5, 6, 11, 12, 13, 14, 15 and 20.
This decision will terminate 25 months from the date of the receipt for the Shelf Prospectus.
The further decision of the Decision Makers is that the Confidentiality Relief is granted.