Smoke and Mirrors? Disclosures in the Marijuana Industry in Canada

Licensed producers (LPs) of marijuana in Canada are embedded in a highly competitive industry where they raise funds from investors to finance their growth. They face substantial risks from the uncertain legal status of marijuana and from its unsettled health and safety consequences. We argue that this context stands to have implications for the disclosures of firms in the marijuana industry. We rely on a multicase study of three large Canadian LPs to explore their mandatory and voluntary disclosures during the third quarter of 2018. We find that their mandatory interim disclosures are largely consistent with disclosure rules that target marijuana operations. We also find that they make voluntary disclosures relevant for their context (e.g., about risks from legal, health, and safety consequences), and that there is variation in these disclosures. We use our findings as a springboard for discussing the antecedents of mandatory and voluntary disclosures in the marijuana industry (i.e., proprietary costs, investor interest, detection costs of selective disclosures), and their consequence (i.e., lack of comparability). We offer suggestions for future research.     

Preferences for Performance versus Potential in Promotion Recommendations

As high-performing employees with high potential (or superstars) are rare in the workplace, practitioners often face a performance–potential trade-off when deciding who to promote. We use regulatory focus theory as a framework to examine whether Canadian managers (n = 58) and human resource (HR) professionals (n = 121) show a preference for performance or potential when making near-term promotion recommendations. We show that respondents generally had a preference for performance versus potential when making their recommendations, and HR professionals versus managers accorded greater weight to potential. We discuss the implications of the relative emphasis on performance versus potential in promotion recommendations and when this may contribute to organizational inefficiencies.     

Trading Prior to the Disclosure of Material Information: Evidence from Regulation Fair Disclosure Form 8‐Ks*

Regulation Fair Disclosure (Reg FD) Form 8‐K filings provide a venue where managers release information to the market as a whole that they designate as being material. Using this setting, we study trading patterns immediately prior to the public disclosure of material information. We offer three main results. First, using both intraday and daily trading data, we find abnormal trading volume of 21 percent (13 percent) in the hour (day) prior to the public disclosure, respectively. Second, we find that this pre‐disclosure abnormal trading volume is concentrated in firms that are smaller, have more growth opportunities, issue fewer voluntary disclosures, and have weaker external monitoring. Finally, we find that this pre‐disclosure volume is concentrated in subsamples in which the information relates to a firm's material contracts, a firm holds investor/analyst conferences, and there is insider trading activity in a firm's shares. Our results do not concentrate in a small number of firms or industries, and do not appear to be explained by the form through which managers first release the material information (e.g., Form 8‐K, press release, website posting, or social media). Our results are also robust to controlling for the firm's other filings and peer filings that occur around the disclosure. Overall, the trading patterns we document may show that, inconsistent with the spirit of Reg FD, a subset of investors trade on information managers deem material prior to its broad, public release.     

Canadian Evidence of Adherence to “Comply or Explain” Corporate Governance Codes: An International Comparison

This study documents the rate of compliance by Canadian public firms with corporate governance recommendations imposed by the Canadian Securities Administrators. Canada uses a “comply or explain” governance structure in which harmonized provincial regulation establishes mandatory disclosure of governance practices. Firms can be compliant with these requirements either by voluntarily adopting the recommended best practices (i.e., adopt) or by explaining the alternative practices implemented to achieve the same governance principle (i.e., explain). Firms that fail to comply (i.e., neither adopt nor explain) are in violation of Canadian securities regulation with respect to governance. Using a hand‐collected sample of 742 Canadian public companies and 16 governance recommendations, our results show that an average of 82 percent of firms complied by adopting the best practice and an additional 4 percent complied by explanation. Our study also shows that 39 percent of Canadian publicly traded firms were completely compliant with all 16 recommendations examined in this study, either by adoption or explanation. To provide a broader context for these results, we compare rates of compliance in Canada to rates in Australia, a country broadly similar to Canada with comparable governance recommendations. The Australian Securities Exchange supplied data sample of 1334 Australian companies reports a complete compliance rate of 74 percent compared to Canada's 39 percent complete compliance rate. Our analysis shows that compliance by adoption of best practice is more common in Canada, whereas compliance by explanation is more common in Australia. In our analysis of compliance with individual recommendations, we find that half of the recommendations are more likely to be complied with in Australia, and the other half are more likely to be complied with in Canada.