Tag Archives: stock

CannTrust Meltdown Indicative Of Summer Of Scandal To Come

By Marguerite Arnold
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While you may not have heard of CannTrust Holdings so far, that is now about to change. A summer spectacle of double dealing and corporate greed has put this Canadian cannabis company on the global map.

Unfortunately, the current meltdown underway is indicative of more to come.

A Summary Of The Story So Far

CannTrust, a company which serves 72,000 Canadian patients and got into the game early, decided to do what it saw other companies doing all around them. That covers a lot of ground (good and bad at this point). Regardless, the most relevant recent twist to the saga came when the company hired a new CEO, Peter Aceto last October.

Aceto however, along with the now also fired co-founder and chair of the board Eric Paul, decided to continue growing and harvesting unlicensed product. Worse, this occurred while boasting in public of their productivity gains on the way to securing a hefty investment of capital this spring. $170 million. The grow rooms finally got their certification in April.

What is even more embarrassing however, is that this was a round led by the much-vaunted investors the industry has been courting assiduously for the past several years. Specifically, in this case? Institutional banks like Bank of America, Merrill Lynch, Citigroup, Credit Suisse Securities and RBC Capital Markets.

But that is “just” the North American hemisphere. The rather unfortunately named CannTrust (certainly at this point) also had a European footprint – notably Denmark. Unlicensed cannabis ended up there too, of course. Stenocare A/S, the company at the receiving end of the same, reported receipt of product from the unlicensed rooms on July 4.

As far as such things go, however, you have to give it to CannTrust company executives. In terms of setting standards if not benchmarks and “records”, they certainly seemed to have set a few, although probably not the ones they aspired to. If not, with certainty, their investors.

A Surprise Or Inevitability?

That said, for many who have been sounding warnings for at least a year, the 2019 Summer of Canadian Cannascandal is certainly starting to confirm what many have been saying for quite some time. This is not the first time a securities exchange, for one, has sounded the alarm. Deutsche Börse delisted the entire North American public cannabis industry last summer briefly. Then they revised their policy, reluctantly, after Luxembourg changed its stance on medical use. That said, they are still watching with a standing policy of bouncing any company that runs afoul of their rules.

The problems, issues and more bubbling at the center of this cannameltdown, in other words, are not limited to just one company or country.

And everyone knows it.

Accounting For Past Mistakes

For those who are counting, the value of all of that illegally grown CannTrust product is not insignificant. Estimates are floating in the CA$50-70 million range. The problem is, of course, nobody is sure what numbers to rely on. CannTrust employees knowingly provided inaccurate information to the new CEO if not regulatory body until a whistle-blower provided a few more details.

That said, for all of the hullabaloo, one thing this story also does is point a bright spotlight on the lax enforcement of even this pretty easy-to-understand regulation.

The question, however is, if CannTrust thought it could get away with this kind of blatent flouting of the rules, if not lax oversight, are there any other companies who might have also done similiar things?

After all, even the pesticide scandal of 2016 did not occur at just one company either.

Where Are The Proceedings?

This is a rolling story, which began to break at the beginning of last month when Health Canada issued a non-compliance order to CannTrust and impounded 5,200 kg of dried cannabis that was apparently grown in unlicensed grow rooms on July 3.

There have already been some jaw dropping revelations so far (beyond the executive decision to even go down this road in the first place) no matter how attractive pimping numbers was. Starting with things like fake walls being erected to hide the grow. And then of course pictures that have been all over social media of late, of the now departed CEO Aceto being photographed directly in front of said unlicensed rooms too.

As a result, the drama has continued to unfold in a highly predictable way.

By August 1, CannTrust Holdings, a Canadian cannabis company listed on both the New York and Toronto stock exchanges, was facing a “quasi-criminal investigation” by the Canadian Joint Serious Offenses Team. This is a coalition of law enforcement agencies including the Ontario Securities Commission, the Royal Canadian Mounted Police Financial Crimes Unit, and the Ontario Provincial Police Anti-Rackets Branch.

But CannTrust’s issues don’t end there. This is an international story that is just beginning. Government regulators in Europe if not elsewhere are paying attention.So are shareholders, and their lawyers.

Aphria Fights Shortseller Allegations Of Insider Double Dealing

By Marguerite Arnold
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Two reports published by short selling stock firm Quintessential Capital Management and forensic investor research firm Hindenburg Research on December 3, charges that Canadian LP Aphria, has bought overinflated assets in Latin America and in Florida from shell companies owned by company insiders. Added to the lingering controversy is the purchase of the German Nuuvera this spring (a company also partly owned by Aphria brass), and the reports went over like a bombshell. Globally.

However, the story has already spread far beyond one company. And the response in the market has rocked the industry for most of December.

Aphria’s shares tanked, and dragged everyone down with them. Several class action law firms in the United States began promptly looking for aggrieved shareholders.

The response by the firm? A promise of an immediate line-by-line rebuttal, due out in the second week of December. So far, however, despite news of an additional Aphria purchase in Paraguay, the rebuttal report has not been issued.

Why Is This So Damaging? Or Is It?

Aphria’s stocks promptly took a dive that halved their value although they began to recover after Aphria management appointed an independent third party firm to review the claims.

Worse, however, the entire industry saw a hit too. This report affected investor confidence across the industry. And although the hit appears to be temporary, the unfolding scenario is a perfect example of why volatility in the market is scaring away not only more conservative female retail investors but larger institutional ones that the industry is now courting assiduously as medical cannabis begins to be integrated into health systems particularly in Europe.

Why?

Bottom line? As the big cannabis companies are listing on the larger, foreign exchanges, including the NYSE and Deutsche Börse, the scrutiny is getting more direct and granular.Despite the stratospheric market caps of all the major Canadian LPs in particular, not to mention enormous expenditures for the last several years (on property and other acquisitions), the revenue picture, as other stock analysts and publications such as the normally neutral Motley Fool recently pointed out, at least so far does not justify the same. Bulk sales to a hospital, establishing a cultivation or processing facility or even getting import licenses may set one up to do business however, but it is not an automatic route to ongoing and expanding sales. And that is the key to high valuations that are rock solid and beyond the scope of such allegations.

For the moment, that pressure, particularly in global medical markets, is falling first on patients if not doctors. Not the industry.

That said, this has been a major building year. Recreational cannabis has just become legal in Canada. And in Europe, reform is still in the process of happening.

It is also a charge if not frustration that has been growing, however, against all the public cannabis companies as valuations shoot into the stratosphere. Forensic and investigative firms, particularly in Europe and the United States have been focusing on the industry for close to a year now. As a result even when firms successfully rebut charges of fraud, they are looking at different valuations from analysts at least in the short term.

Bottom line? As the big cannabis companies are listing on the larger, foreign exchanges, including the NYSE and Deutsche Börse, the scrutiny is getting more direct and granular.

Are “Short Seller” Reports Unbiased?

For all of the focus on short seller reports in this industry, however, no matter the accuracy of some of their claims, here is the next issue:

Short sellers make money by betting against not only individual firms but the industry itself. They benefit financially in other words, from volatility in the market and arbitraging even small changes in price. Even if their reports cause the same.

Such reports as a result are also not “unbiased” as industry coverage in the press is supposed to be, no matter how much more time sometimes goes into the reporting and preparation of the same.

And no matter that this industry is now going into its fifth year, there is still lingering scepticism that, in the case of Aphria, has so far not only fallen on the individual firm in question, but then rebounds across the industry, unfairly hurting all firms in this space.

Wayland Group Makes European Waves

By Marguerite Arnold
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While it is news that Wayland Group has just signed a definitive production agreement in Italy with a local CBD producer (Factory S.S. – a subsidiary of Group San Martino), it is not that Wayland has been establishing itself in Europe for the past two years.

Nor is it surprising that the new Italian plant (named CBD Italian Factory) will feature world-class cleantech production technology (fuelled by biogas). Even more intriguingly the joint venture also includes a relationship with the University of Eastern Piedmont, which is developing a research center to study the development of cannabinoid products for both animals and people.

Why not?Europe is far from the only region on Wayland’s global expansion map.

Wayland has been establishing itself in an interesting way as the company expands globally that distinguishes its corporate strategy from its other cannabis competitors. It was only April of this year, after all, that Wayland received its ex-im license to ship dried cannabis flower from Canada to Germany. At a time when the company also used to be known as Maricann. That corporate name change happened this year too, as the company continues to build its global brand in very interesting if far-flung markets.

A Busy Fall So Far

Europe is far from the only region on Wayland’s global expansion map. In the first week of November, in fact, the company also signed an agreement to buy 100% of Colma Pharmaceutical SAS, a Columbian-licensed producer of THC. This will be an outdoor THC play, and produce two crops a year. They also just announced a land acquisition in Argentina to begin cultivating cannabis there as well.

In October, the company announced not only plans to raise $50 million, but also brought on three new board members with significant European legal and business experience (including M&A and access to equity markets). This includes the company’s first female board member, Birgit Homburger, based in Berlin.

And this is on top of its record-breaking hemp harvest in Germany, which outperformed internal forecasts by a factor of 2. This is an important benchmark domestically, as German cultivation licenses will require successful firms to prove they can bring large quantities of flower to market successfully and repeatedly.

A Marked Interest In Cannatech

Like many firms, Wayland is already showing a marked interest in new cannabis technologies, in particular, innovative cultivation solutions, but not limited to the same. In August, the company unveiled its first product launch in Europe – a soft gel with 25mg of CBD that utilizes multi-patented technology allowing optimum absorption and bioavailability. Its German unveiling is significant because the insurance and medical industries here are unclear about dosing. That lack of clarity is also now holding back policy and underwriting issues, including the approval of medical cannabis in the first place.

These capsules, a non-medical product and marketed under the name “Mariplant” were first shipped to pharmacies in both the Munich and Cologne area in the late summer.It has continued to expand both its Canadian and foreign as well as tech expansions ever since.

The Road So Far

The company, which started with a facility in Langton, Canada in 2013, earned a license from Health Canada to sell cannabis extracts in early 2016. By December of that year (a good four months before the German cultivation bid was announced) Maricann GmbH was formed in Munich. By March, the month before the cultivation bid was first announced, the company began retrofitting the Ebersbach facility, near Dresden.

In April of 2017, Maricann went public. It has continued to expand both its Canadian and foreign as well as tech expansions ever since.

While not a “high flier” on the stock market (like competitors Tilray, Canopy and Aurora), the company is carefully plotting its position in a global market that is still very much a “blue ocean” opportunity.

It is also carefully plotting a path into both production and delivery systems that are optimized by tech in a universe that is rapidly upgrading not only its image, but finding ways to prove if not justify medical efficacy.

Epidiolex-GW

GW Pharma’s Enormous Price for Epidiolex

By Marguerite Arnold
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Epidiolex-GW

In a fascinating early August conference call with Seeking Alpha, British-based GW Pharmaceuticals finally revealed their retail price point for CBD-based drug, Epidiolex, as it goes into distribution in the U.S.

The drug is designed for the treatment of certain kinds of childhood epilepsy – although not all kinds. Also notable of course, is that GW Pharma’s “other” drug for treatment of resistant epilepsy failed in late stage trials in Eastern Europe earlier this year. It also knocked off 5% of the price of the company’s stock.The company is estimating it has a potential patient pool of between 25,000- 30,000 patients in the U.S.

British Advocacy Over Access And Pricing

The ineffectiveness of GW Pharma’s drugs for many patients (along with the cost charged for them) was responsible for pre-empting the entire access discussion in the UK this year. The mother of an epileptic British child tried to import a personal store of cannabis oil (produced by Canadian LP Tilray) only to have it confiscated at the airport this summer. Her son ended up in the hospital shortly thereafter.

The national uproar this caused pushed forward the country’s new medical cannabis policy– indeed drug rescheduling is due to go into effect in October. Conveniently, right as Epidiolex goes on sale in the U.S. (where cannabis remains a Schedule I drug).

The company is estimating it has a potential patient pool of between 25,000- 30,000 patients in the U.S.

Price Tags and Politics

What is the price of Epidiolex? $32,500 per patient, per year. If that sounds high, the company insists it is pricing the drug to be “in line” with other drugs for this segment of the market.

The majority of this cost will not be picked up by private health insurers but rather the federal governmentActually, according to industry analysis, this is about 70% more than the price of one comparable drug (Onfi), and slightly more expensive than Banzel, the two competing (non-cannabinoid based) medications now available in the U.S. for this market.

Here is the other (widely unreported) kicker. The majority of this cost will not be picked up by private health insurers but rather the federal government, which is also not negotiating with GW Pharma about that high price  (unlike for example what is going on in Europe and the German bid).

Why the difference?

Two reasons. The first is that Epidiolex has obtained “orphan drug” status (a medication for a disease that affects fewer than 200,000 patients in the U.S.) The second is that the majority of the insurance that will be picking up this tab is Medicaid. The patient pool will be unable to afford this. As a result, the bulk of the money will remit not from private insurance companies but rather federal taxpayers. And, unlike in say, Germany, none of this is pre-negotiated in bulk.

Epidiolex-GW
What is the price of Epidiolex? $32,500 per patient, per year.

Co-payments are expected to range from $5 to $200 per month per patient after insurance (read: the government) picks up the tab. This essentially means that the company plans to base participation at first at least on a sliding scale, highly subsidized by a government that has yet to reschedule cannabis from a Schedule I in the U.S.

Creating, in other words, a new monopoly position for GW Pharmaceuticals in North America.

A Hypocrisy Both Patients And The Industry Should Fight

The sordid, underhanded politicking that has created this canna monster is hardly surprising given the current political environment in both the U.S. and the U.K. right now. The people who benefit the most from this development are not patients, or even everyday shareholders, not to mention the burgeoning legitimate North American cannabis industry, but in fact highly placed politicians (like British Prime Minister Theresa May). Philip May, the PM’s husband’s firm is the majority shareholder in GW Pharma. Her former drugs minister (with a strong stand against medical cannabis) is married to the managing director of British Sugar, the company that grows GW Pharma’s cannabis stock domestically.

So far, despite a domestic outcry over this in the UK (including rescheduling), there has been no political backlash in the United States over this announcement. Why not?

Look To Europe For A More Competitive Medical Market

This kind of pricing strategy is also a complete no go in just about every other market – including medical-only markets where GW Pharma already has a footprint.

For example, German health insurers are already complaining about this kind of pricing strategy for cannabis (see the Cannabis Report from one of the country’s largest insurers TK – out earlier this year). And this in an environment where the government, in fact, does negotiate a bulk rate for most of the drugs in the market. Currently most German cannabis patients are being given dronabinol, a synthetic form of THC which costs far less.

GW logo-2On top of this, there are also moves afoot by the German government to begin to bring the costs of medical cannabis and medicines down, dramatically. And this too will impact the market – not only in Europe, but hopefully spark a debate in every country where prices are also too high.

The currently pending German cultivation bid for medical cannabis has already set an informal “reference” price of at most 7 euros a gram (and probably will see bid competitors come in at under half that). In other words, the government wholesale price of raw, unprocessed cannabis flower if not lightly processed cannabis oil is expected to be somewhere in the neighbourhood of 3-4 euros per gram come early next year. If not, as some expect, potentially even lower than that.

Processed Cannabis Medicine vs. Whole Plant Treatment

The debate that is really raging, beyond pricing, is whether unprocessed cannabis and cannabis oil is actually “medicine.” At the moment, the status quo in the U.S. is that it is not.

GW Pharmaceuticals, in other words, a British company importing a CBD-based derivative, is the only real “medical cannabis” company in the country, per the FDA. Everyone else, at least according to this logic, is placed in the “recreational camp.” And further, hampered still, with a lack of rescheduling, that affects everyone.

If that is not an organizing issue for the American cannabis industry, still struggling with the many issues inherent in the status quo (from insurance coverage and banking to national distribution across state lines) leading up to the midterms, nothing will be.

Soapbox

Terpene Reconstitution: This Oak Barrel Is Not Your Answer

By Dr. Zacariah Hildenbrand
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I’m not much of an oenophile but I recently came across a very interesting set of documentaries about sommeliers, which are experts on the science of wine and, most importantly, how wines are to be paired with food. What struck me as the most fascinating topic pertained to how mistakes made in the vineyard could be concealed by the barrel in which the wine is stored. For example, if the weather conditions throughout the season had been particularly tumultuous, and you end with sub-optimal grapes that are lacking complexity, then you can compensate for this by aging the wine in a variety of different oak barrels to enhance the flavor. To me, this is synonymous with the way that I’ve seen cannabis concentrates being handled, particularly with respect to terpenes. More specifically, it has recently become somewhat fashionable to supplement cannabis extracts with commercially available terpenes to reestablish an aroma profile that is most representative of the original stock material. Taken one step further, I have even heard of hemp extracts being supplemented with terpenes to achieve a particular strain phenotype, which I cannot imagine pans out very well. In my opinion, this is a very bad idea for two reasons:

One, cannabis is incredibly complex and can contain over 100 different terpene molecules, which can collectively act as anti-inflammatories (Chen et al., 2014), anti- microbial agents (Russo, 2011), sleep aids (Silva et al., 2007), bronchodilators (Falk et al., 1990), and even insulin regulators (Kim et al., 2014). So let’s say that you get your stock material tested and the laboratory screens the product for the top 25 most-prevalent terpenes: alpha- and beta-pinenes, linalool, limonene, beta-myrcene, etc. At that point you utilize this information to supplement your extraction product with these terpenes. However, you still may be missing information about other important molecules such as trans-2-pinanol, alpha-bisabolene and alloaromadendrene that are produced at extremely low, yet therapeutically relevant concentrations in the plant. So essentially with the limited information of the terpenes actually present in your stock material, you would be trying to rebuild a puzzle with only a small fraction of the pieces. Even Ben Affleck’s character in the movie ‘The Accountant’ can’t effectively pull this off.

An example of some commercially available terpenes on the market

Secondarily, not all commercially available terpenes are created equal. I’ll be the first to admit that I don’t have decades of experience vetting the quality of terpenes currently on the market; however, the several times that I have thrown samples into the GC-FID (Gas Chromatograph equipped with a Flame Ionization Detector) I have been unpleasantly surprised. Expecting beta-caryophyllene and detecting caryophyllene oxide is frustrating and in my opinion, such inaccuracies are wrong and should not be accepted as colloquialisms.

The moral of the story here is that in order to produce premium cannabis extracts/concentrates, the stock material needs to be handled with extreme care in order to retain the bouquet of terpenes in their natural ratios. This is incredibly important given the volatile nature of terpenes and their seemingly ephemeral, yet vital, nature in cannabis. Thankfully in this bourgeoning industry there are a number of extraction professionals who are delicately navigating the balance between art and science to produce premium products that are incredibly terpene-rich. However, for every alchemyst there is also someone trying to circumvent nature and while as a scientist I am inherently in favor of experimentation, I am also an admirer of natural processes.