Last week, GW Pharmaceuticals (Nasdaq: GWPH) announced they have entered into an agreement with Jazz Pharmaceuticals (Nasdaq: JAZZ) for Jazz to acquire GW Pharma. Both boards of directors for the two companies have approved the deal and they expect the acquisition to close in the second quarter of 2021.
GW Pharma is well-known in the cannabis industry as producing the first and only FDA-approved drug containing CBD, Epidiolex. Epidiolex is approved for the treatment of seizures in rare diseases like severe forms of epilepsy. GW is also currently in phase 3 trials seeking FDA approval for a similar drug, Nabiximols, that treats spasms from conditions like multiple sclerosis and spinal cord injuries.
Jazz Pharmaceuticals is a biopharmaceutical company based in Ireland that is known for its drug Xyrem, which is approved by the FDA to treat narcolepsy.
Bruce Cozadd, chairman and CEO of Jazz, says the acquisition will bring together two companies that have a track record of developing “differentiated therapies,” adding to their portfolio of sleep medicine and their growing oncology business. “We are excited to add GW’s industry-leading cannabinoid platform, innovative pipeline and products, which will strengthen and broaden our neuroscience portfolio, further diversify our revenue and drive sustainable, long-term value creation opportunities,” says Cozadd.
Justin Gover, CEO of GW Pharma, says the two companies share a vision for developing and commercializing innovative medicines, with a focus on neuroscience. “Over the last two decades, GW has built an unparalleled global leadership position in cannabinoid science, including the successful launch of Epidiolex, a breakthrough product within the field of epilepsy, and a diverse and robust neuroscience pipeline,” says Gover. “We believe that Jazz is an ideal growth partner that is committed to supporting our commercial efforts, as well as ongoing clinical and research programs.”
Cultivation businesses should consider specializing in just one stage of the cannabis cultivation process. The industry has focused heavily on vertical integration, and some regulating bodies require licensees to control the entire cannabis value chain from cultivation and processing to retail. This requirement is not always in the best interest of the consumer or the business, and will likely change as the industry evolves. Not only will companies specialize in each step of the value chain, but we’ll see even further segmentation among growers that choose to focus on just one step of the cultivation process. Cannabis businesses that want to position themselves for future success should identify their strengths in the crop production process and consider specializing in just one part.
Elsewhere in commercial horticulture, specialization is the norm. It is unlikely that the begonias you bought at your local garden shop spent their entire life inside that greenhouse. More likely, the plant spent time hopping between specialists in the production chain before landing on the retail shelf. One grower typically handles stock plant production and serves as a rooting station for vegetative cuttings. From there, rooted cuttings are shipped to a grower that cares for the plants during the vegetative stage. Once they’re an appropriate height for flowering, they’re shipped to the last grower to flower out and sell to retailers.
Cannabis businesses should consider imitating this model as a way to ensure competitiveness in the future. In the US, federal law does not yet allow for the interstate transport of plants containing THC, but the process can be segmented within states where vertical integration is not a requirement. As we look ahead to full federal legalization in the US, we should anticipate companies abandoning the vertical integration model in favor of specialization. In countries where cannabis cultivation is federally legal, entrepreneurs should consider specialization from the moment they begin planning their business.
Cultivators that specialize in breeding and genetics could sell seeds, rooted cuttings, and tissue culture services to commercial growers. Royalties could provide a recurring source of income after the initial sale of seeds or young plants. Contracting propagation activities to a specialist can result in consistently clean rooted cuttings that arrive certified disease-free at roughly ¼ the cost of producing them in-house. This not only frees up space at the recipient’s greenhouse and saves them money, but it eliminates the risks inherent in traditional mother plant and cloning processes. If a mother plant becomes infected, all future generations will exhibit that disease, and the time, money, energy, labor, and space required to maintain healthy stock plants is substantial. Growers that focus on large scale cultivation would do well to outsource this critical step.
Intermediary growers could specialize in growing out seeds and rooted cuttings into mature plants that are ready to flower. These growers would develop this starter material into healthy plants with a strong, vigorous root system. They would also treat the plants with beneficial insects and inoculate the crop with various biological agents to decrease the plant’s susceptibility to pest and disease infestations. Plants would stay with this grower until they are about six to 18 inches in height—the appropriate size to initiate flowering.
The final stage in the process would be the flower grower. Monetarily, this is the most valuable stage in the cultivation process, but it’s also the most expensive. This facility would have the proper lighting, plant support infrastructure, and environmental controls to ensure that critical grow parameters can be tightly maintained throughout the flowering cycle. The grower would be an expert in managing late-stage insect and disease outbreaks, and they would be cautious not to apply anything to the flower that would later show up on a certificate of analysis (COA), rendering the crop unsaleable. This last stage would also handle all harvest and post-harvest activities—since shipping a finished crop to another location is inefficient and could potentially damage the plants.
As the cannabis cultivation industry normalizes, so, too, will the process by which the product is produced. Entrepreneurs keen on carving out a future in the industry should focus on one stage of the cultivation process, and excel at it.
On December 16, 2020, Aphria Inc. (TSX: APHA and Nasdaq: APHA) announced a merger with Tilray, Inc. (Nasdaq: TLRY), creating the world’s largest cannabis company. The two Canadian companies combined have an equity value of $3.9 billion.
Following the news of the merger, Tilray’s stock rose more than 21% the same day. Once the reverse-merger is finalized, Aphria shareholders will own 62% of the outstanding Tilray shares. That is a premium of 23% based on share price at market close on the 15th. Based on the past twelve months of reports, the two companies’ revenue totals more than $685 million.
Both of the companies have had international expansion strategies in place well beyond the Canadian market, with an eye focused on the European and United States markets. In Germany, Aphria already has a well-established footprint for distribution and Tilray owns a production facility in Portugal.
About two weeks ago, Aphria closed on their $300 million acquisition of Sweetwater Brewing Company, one of the largest independent craft brewers in the United States. Sweetwater is well known for their 420 Extra Pale Ale, their cannabis-curious lifestyle brands and their music festivals.
Once the Aphria/Tilray merger is finalized, the company will have offices in New York, Seattle, Toronto, Leamington, Vancouver Island, Portugal and in Germany. The new combined company will do business under the Tilray name with shares trading on NASDAQ under ticker symbol “TLRY”.
Aphria’s current chairman and CEO, Irwin Simon, will be the chairman and CEO of the combined company, Tilray. “We are bringing together two world-class companies that share a culture of innovation, brand development and cultivation to enhance our Canadian, U.S., and international scale as we pursue opportunities for accelerated growth with the strength and flexibility of our balance sheet and access to capital,” says Simon. “Our highly complementary businesses create a combined company with a leading branded product portfolio, including the most comprehensive Cannabis 2.0 product offerings for patients and consumers, along with significant synergies across our operations in Canada, Europe and the United States. Our business combination with Tilray aligns with our strategic focus and emphasis on our highest return priorities as we strive to generate value for all stakeholders.”
Here is the headliner: As of the second week in January, there will be a cannabis related exchange-traded fund (ETF), trading on the Frankfurt Stock Exchange (or Deutsche Börse), the third largest stock exchange in the world and the meeting point between equities and the vast majority of institutional investment globally.
The Medical Cannabis and Wellness UCITS ETF (CBSX G) will trade on Deutsche Börse’s Xetra.
London-based ETF provider HANetf is the creator of the fund.
The idea is to create a fund with targeted exposure to the European market. And as a result, it is bound to be interesting. Especially as the companies included must go through a due diligence process that will only include equities traded on stock exchanges like the NYSE, Nasdaq and TSX.
This of course is no guarantee, particularly given the scandals of the major Canadians last year (who are listed on all or an assortment of the above).
Indeed, in the eyes of German authorities, this is not necessarily all that significant. And that in and of itself is a watchword of caution here. Namely the Deutsche Börse put the entire North American cannabis equity market under special watch two years ago and that has not changed since then. That said, with legalization now clearly in Europe, things in general look a lot different on the ground.
What will be really intriguing is when the fund (or the ones inevitably to follow) that look at the discussion from a European market perspective.
Purpose Investments, the Canadian partner involved, has over CA $8 billion in assets under management as of last month and across a range of ETFs.
Solactive, the German company which independently calculates the index, may also be unknown to North Americans in particular. In Germany, particularly Frankfurt, they have developed, since their founding in 2007, a reputation for being not only quirky, but not risk averse. In other words, decidedly “non-German,” at least by stereotype. And cannabis right now, particularly with this approach, is an inevitable development. This could, in fact, do very well. The problem, however, that is still in the room is the vastly different levels of compliance – but that too is a risk calculation that is to the people at the table, no different than certain kinds of commodities.
That alone makes this ETF intriguing simply because it will indeed be evaluated by German eyes – if not processes.
Things are clearly normalizing on both the accounting and reform front. The growth of the regulated Canadian market and the increasing focus on regulation of all kinds is only going to make things less risky for investors.
Bottom line: Good development, but won’t be the last. By far.Further, there are not many public European companies, yet. That may also change. However, for the moment, they are still a trickle (and all over the map).
What is intriguing is the timing of the fund. If not what it potentially spells for the public markets. And further the obvious research the Auslander team have done in finding the right European-based partner. Look for interesting things indeed.
This is the first real foray into Europe by anything outside a single stock offering on a European equity market.
For Germans, in particular, who are extremely risk averse, and tend to invest in other kinds of securities if not insurance to build up their pensions, the equity markets sniff a bit too much for most of “North American scam.” Far from cannabis. Yet some Germans do invest in the markets. As do other Europeans.
Bottom line: Good development, but won’t be the last. By far.
Ever since California legalized medical use of cannabis in 1996, entrepreneurial people and people with money have been looking to turn the cannabis trade into a bonafide industry. The cannabis Green Rush has been a fast and chaotic ride as growing legalization opened myriad opportunities. It seemed for a while that pot was too big to fail.
Yet the second quarter of this year saw the majority of publicly traded cannabis companies recording double-digit losses (with 10 top cannabis stocks with a combined value of $55 billion losing an estimated $21 billion in collective value). Meanwhile, some of the industry’s most recognizable brands are under pressure to cut costs in favor of demonstrable profitability. It is clear that investors have become leery of inflated and unsustainable valuations.
But pot isstill too big to fail.
Polls show an ever-growing majority of Americans believe cannabis should be legal, and the number of states with legal weed continues to grow. The state-sanctioned market will reach nearly $13 billion in sales this year, according to BDS Analytics, with about a quarter in California, the largest, most mature legal market in the world. Total U.S. sales are on track to reach $30 billion by 2024. Legal cannabis remains the biggest investment opportunity of our times, but the Green Rush may be over. And that’s a good thing.
Get over the “green rush” mentality
From the Gold Rush to the Dot Com Boom, great opportunities have tended to create irrational mobs. Have you ever watched a group of Black Friday shoppers? In a frenzy, you often do not stop to evaluate if something is a bargain or if you even need the item. In the investment world, that type of frenzy leads to bubbles. When the Dot Com bubble burst in 2000, almost half the industry’s rising tech companies shuttered their doors, and an estimated $4-6 trillion in shareholder wealth vanished.
A similar thing is happening in cannabis.
The end of the Green Rush means we can now focus on safeguarding cannabis’ future, and not pillaging it for a quick profit.Growing legalization has created an influx of capital, but much of the early institutional money and retail investors went to Canada, where the absence of a federal prohibition allowed for a robust financial market to flourish. Canopy Growth Corp. was the first large-cap cannabis company to go public in 2016, followed by other large licensed producers or LPs. Because they are not violating U.S. laws, Canadian cannabis companies were able to uplist to the NASDAQ and NYSE as well.
American cannabis companies on the other hand – unable to freely tap capital markets at home, flooded Bay Street looking to go public on the Canadian Securities Exchange, and the rush went on hyperdrive. Soon market caps became grossly inflated, and too many cannabis companies that were barely showing profit took big gambles with other people’s money. Now, those investors are paying the price.
But a burst bubble is a good thing. It is a correction that forces companies to focus on priorities and fundamentals, and cannabis is no different. The end of the Green Rush is the start of a real industry with surviving operators becoming even stronger, less reliant on speculation and more focused on performance.
There will always be companies going public to create liquidity, and there will always be venture funding at the ready for any promising new startup. But cannabis will only survive if companies focus less on raising money and more on actually running their businesses.
Cannabis is creating unprecedented cultural and lifestyle shifts. It’s helping shape how people assess, diagnose and treat a broad span of health and wellness issues. Cannabis is helping to break the barriers of opioid addiction, and it’s even beginning to rival the alcohol industry. One out of every five beer drinkers in a Nielsen Market Insights report said they will spend less on store-bought beer due to consuming cannabis. Among the 65 percent of people who purchased over-the-counter drugs for pain relief, 35 percent said they will consider cannabis as a substitute.
The end of the Green Rush means we can now focus on safeguarding cannabis’ future, and not pillaging it for a quick profit.
The beleaguered CannTrust has been given a way out of the perilous mess that executive management created for the company – but such a salvation comes at a high cost. That said, the company was already in deep water with regulators and clients. Health Canada, in fact, cancelled the company’s license to produce and sell cannabis in September – essentially mandating mass returns two months after a whistleblower instigated what is probably the legal industry’s most egregious scandal to date.
Efforts to regain regulatory approval also include plans by the company to recover cannabis that was not authorized by its license, and improve inventory tracking – the full details of which will be delivered to Health Canada by October 21.
While the beleaguered pot company’s stock predictably surged again on the public markets, the question lingers: can CannTrust ever be trusted again? These were egregious violations.
A Changing Industry
As with most things in business, the issues plaguing CannTrust were not isolated to one company. This has ranged in the past from pesticide use to creative accounting. Not to mention all sorts of creative endeavors on the financial side that are, depending on which stock market you look at this from, less than legit or just this side of shady.
It was easy to throw the book at a company like this – not only for these specific violations, but also as a warning to others tempted to engage in similar tactics (or fail to clean those up that still exist).
CannTrust in other words, was a clarion bell about the change in the weather, driven not only by international treaties but the legitimization of the drug, on the ground. Globally. When large health insurers get involved (see Europe), the conversation begins to change. And it is, fairly drastically.
On the ground in Germany, there are two more cultivation sites underway with one now certified and functional. BfArM (the German equivalent of the FDA) is now on the front lines of a battle that so far, at least in Canada, has not been addressed at a level Europe requires. That said, this reality too is changing. One of the largest distributors in Germany, CC Pharma, now owned by Aphria, has started a supply chain compliance check that is overdue. And further, while focussed on the cannabis industry, in truth, is a problem that plagues pharma far from cannabinoids.
However, as this is the cannabis industry, the scandals that rip through headlines are that much more visceral.
Seed to sale traceability, and further in a model unseen in the industry so far, will also become a watchword that is still rippling through an international industry chafing at any sort of standards, let alone standardization required for pharmaceutical acceptance. The bar, in other words, has just been set much higher. And there are many who will not make the grade.
CannTrust, certainly, was a victim not only of internal mismanagement, but a shifting environment that is rapidly upgrading on a level not seen so far in the entire North American industry – with a few notable exceptions.
Pharmaceutical Grade Is The Standard To Beat
Here is the reality now facing an industry coming into its own and on an international basis. The standards are tightening. The rules are not only being written but being enforced. And while there are sure to be a few more scandals along the way, the kinds of basic problems found at CannTrust are probably, finally, going extinct in the part of the industry that now knows it is being held accountable to far higher standards.
The reason? Medical grade and national food standards are in the room for every exporter now eyeing Europe. And that alone is resetting the debate everywhere. No matter how treacherous the path may be.
So no matter how harsh the penalties are now facing one company, even the regulators know that this is shifting territory. CannTrust, after all, is being given a second chance.
As Europe swooned under record-breaking heat this summer, the cannabis industry also found itself in a rather existential hot seat.
The complete meltdown at CannTrust has yet to reach a conclusion. Yes, a few jobs have been lost. However, a greater question is in the room as criminal investigatory and financial regulatory agencies on both sides of the US-Canada border (plus in Europe) are getting involved.
As events have shown, there is a great, big, green elephant in the room that is now commanding attention. Beyond CannTrust, how widespread were these problematic practices? And who so far has watched, participated, if not profited, and so far, said nothing?
Who, What, Where?
The first name in the room? Canopy Growth.
Why the immediate association? Bruce Linton, according to news reports, was fired as CEO by his board the same day, July 3, 2019, that CannTrust received its first cease and desist notice from Health Canada.
Further, there is a remarkable similarity in not only problematic practices, but timing between the two companies. This may also indicate that Canopy’s board believed that Linton’s behaviour was uncomfortably close to executive misdeeds at CannTrust. Not to mention, this was not the first scandal that Linton had been anywhere close to around acquisition time. See the Mettrum pesticide debacle, that also broke right around the time Canopy purchased the company in late 2016 as well as the purchase of MedCann GmbH in Germany.
Reorg also appears to be underway in Europe as well. As of August, Paul Steckler has been brought in as “Managing Director Europe” and is now based in Frankfurt. Given the company’s history of “co-ceo’ing” Linton out the door, is more change to come?
Video showing dead plants at Canopy’s BC facility surfaced. Worse, according to the chatter online at least, this was the second “crop failure” at the facility in British Columbia. Even more apparently damning? This all occurred during the same time period that the second round of lawsuits against the reconstituted German cultivation bid surfaced.
Canopy in turn issued a statement that this destruction was not caused by company incompetence but rather a delay in licensing procedures from Health Canada. Despite lingering questions of course, about why a company would even start cultivation in an unlicensed space, not once but apparently twice. And further, what was the real impact of the destruction on the company’s bottom line?
Seen within the context of other events, it certainly poses an interesting question, particularly, in hindsight.
Canopy, which made the finals in the first German cultivation bid, was dropped in the second round – and further, apparently right as the news hit about the BC facility. Further, no matter the real reason behind the same, Canopy clearly had an issue with accounting for crops right as Canadian recreational reform was coming online and right as the second German cultivation bid was delayed by further legal action last fall.
Has Nobody Seen This Coming?
In this case, the answer is that many people have seen the writing on the wall for some time. At least in Germany, the response in general has been caution. To put this in true international perspective, these events occurred against a backdrop of the first increase in product over the border with Holland via a first-of-its kind agreement between the German health ministry and Dutch authorities. Followed just before the CannTrust scandal hit, with the announcement that the amount would be raised a second time.
German health authorities, at least, seem doubtful that Canadian companies can provide enough regulated product. Even by import. The Deutsche Börse has put the entire public Canadian and American cannabis sector under special watch since last summer.
By the turn of 2019, Canopy had announced its expansion into the UK (after entering the Danish market itself early last year) and New York state.
Yet less than two weeks later, Canopy announced not new cultivation facilities in Europe, but plans to buy Bionorica, the established German manufacturer of dronabinol – the widely despised (at least by those who have only this option) synthetic that is in fact, prescribed to two thirds of Germany’s roughly 50,000 cannabis patients.
By August 2019, right after the Canopy Acreage deal was approved by shareholders, Canopy announced it had lost just over $1 billion in the last three months.
Or, to put this in perspective, 20% of the total investment from Constellation about one year ago.
What Happened At CannTrust And How Do Events Line Up?
The current scandal is not the first at CannTrust either. In November 2017, CannTrust was warned by Health Canada for changing its process for creating cannabis oil without submitting the required paperwork. By March of last year however, the company was able to successfully list on the Toronto stock exchange.
Peter Aceto arrived at CannTrust as the new CEO on October 1 last year along with new board member John Kaken at the end of the month. Several days later the company also announced that it too, like other major cannabis companies including Canopy, was talking to “beverage companies.” It was around this time that illegal growing at CannTrust apparently commenced. Six weeks later, the company announces its intent to also list on the NYSE. Two days later, both the CEO and chair of the board were notified of the grow and chose not to stop it.
Apparently, their decision was even unchanged after the video and resulting online outrage about the same over the destroyed crops at the Canopy facility in BC surfaced online.
On May 10, just over a week after the Bioronica purchase in Germany, the first inklings of a scandal began to hit CannTrust in Canada. A whisteblower inside the company quit after sending a mass email to all employees about his concerns. Four days later, the company announced the successful completion of their next round of financing, and further that they had raised 25.5 million more than they hoped.
Six weeks later, on June 14, Health Canada received its warning about discrepancies at CannTrust. The question is, why did it take so long?
Where Does This Get Interesting?
The strange thing about the comparisons between CannTrust and Canopy, beyond similarities of specific events and failings, is of course their timing. That also seems to have been apparent at least to board members at Canopy – if not a cause for alarm amongst shareholders themselves. One week after Health Canada received its complaint about CannTrust, shareholders voted to approve the Canopy-Acreage merger, on June 21.
Yet eight days after that, as Health Canada issued an order to cease distribution to CannTrust, the Canopy board fired Bruce Linton.
One week after that, the Danish recipient of CannTrust’s product, also announced that they were halting distribution in Europe. By the end of August, Danish authorities were raising alarms about yet another problem – namely that they do not trust CannTrust’s assurances about delivery of pesticide-free product.
Is this coincidence or something else?
If like Danish authorities did in late August 2019, calling for a systematic overhaul of their own budding cannabis ecosystem (where both Canadian companies operate), the patterns and similarities here may prove more than that. Sit tight for at least a fall of more questions, if not investigations.
Beyond one giant cannabis conspiracy theory, in other words, the problems, behaviour and response of top executives at some of the largest companies in the business appear to be generating widespread calls – from not only regulators, but from whistle blowers and management from within the industry itself – for some serious, regulatory and even internal company overhauls. Internationally.
And further on a fairly existential basis.
EDITOR’S NOTE: CIJ reached out to Canopy Growth’s European HQ for comment by email. None was returned.
Correction: This article has been updated to show that the Danish recipient of Canntrust’s product announced they were halting distribution one week after Bruce Linton’s firing, not one day.
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.
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.
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.
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.
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.
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