Key Investor Report
Key Investor Report
Applicants and licence holders must determine whether they have key investors. As per Health Canada requirements, the applicant will need to submit either 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.
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.
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.