Cannabis Stock Report Year In Review 2017 (Part I): Technology, Takeovers, And Turmoil
"When we started doing some digging, you could start to see that this is akin to financial guerrilla tactics,” said CanniMed Therapeutics CEO Brent Zettl referencing rival cannabis company Aurora Cannabis’ hostile takeover attempt in an early December interview. The quote symbolizes an industry still clawing and fighting its way out of the black markets and into the mainstream.
2017 was a maturation year for legalized cannabis. The industry on both sides of the United States-Canadian border caught the attention of the broader investor class but still suffered from the kind of infighting and posturing to which juvenile sectors are sometimes susceptible. Nevertheless, growth permeated the industry and the money invested showed that legal cannabis prepped itself for a spot on the prime-time stage.
As it stands, 29 U.S. States allow for some form of legal marijuana, with Alaska, Colorado, Oregon, and Washington operating free and open recreational markets. More are set to come in 2018 - none more prominent than California’s, which is expected to be the largest adult-use recreational market in the state. Not to be outdone, Canada plans to repeal marijuana prohibition by the summer of 2018 entirely.
Yet, at least in the states, the cannabis industry is still dealing with the old guard political class who are not ready to fully let go of the past. Federal law still prohibits the sale of cannabis, and U.S. Attorney General Jeff Sessions’ promises of a “rational” marijuana policy seem anything but. It all adds up to an industry ready to break out but still waiting for permission.
Here is part one of the Cannabis Stock Report’s 2017 Year-in-Review of the Cannabis Industry.
Constellation Brands Invests In Canopy Growth Corporation
In October beverage-maker Constellation Brands (NYSE:STZ) (NYSE:STZ.B) turned the cannabis world on its head when they announced the acquisition of a minority stake in Canopy Growth Corporation (TSX:WEED), Canada’s leading cannabis company. It was a landmark moment in legalized cannabis, as mainstream investors finally put significant cash into the sector. The owner of such brands as Corona bought a 9.9 percent stake in the company, costing a total of $245 million. In a statement announcing the deal, Constellation noted that they would not be selling any cannabis products until doing so became federally legal in the United States, evidence of how U.S. law is holding back the industry from its full potential.
“We are thrilled to have the backing of such a well-established and respected organization such as Constellation Brands,” commented Bruce Linton Canopy Growth Corporation Chairman and Chief Executive Officer. “We look forward to working with the Constellation Brands team to access their deep knowledge and experience in growing brands as we continue to expand our business.”
IBM Proposes Blockchain As Regulatory Framework
Earlier this year corporate giant IBM elbowed their way into the cannabis game when they made a monumental proposal to the Canadian government for the adoption of blockchain technology as a regulatory framework for the sale of legalized cannabis. A document produced by the company boosting the technology guaranteed consumer safety and regulatory oversight “from seed to sale.” Associated with its use in the world of cryptocurrencies, the blockchain shared ledger is “cryptographically secure” and can track complex transactions. Aimed at British Columbia, IBM’s proposal showed how the technology could help the government to control all facets of the supply-chain. It was just one of many examples this year of mainstream business looking to cash in on the cannabis green rush.
“Blockchain is rapidly becoming a world-leading technology enabling the assured exchange of value in both digital and tangible assets,” IBM’s report stated. “Its relevance to regulating cannabis is similar to its many chain of custody applications in areas such as pharmaceutical distribution and food chains.”
Aurora Cannabis and CanniMed Therapeutics Declare War
A prime example of the industry’s growing pains this past year was the soap opera-like battle between Aurora Cannabis Inc. (TSX:ACB) and rival cannabis company CanniMed Therapeutics (TSX:CMED). After rejecting a merger offer from Aurora in late November, CanniMed soon found themselves facing the prospect of a hostile takeover by the company. Aurora claimed to have the support of shareholders holding over 30 percent of CanniMed stock. To block the unwanted acquisition, CanniMed enacted a “poison pill,” shareholder rights plan to thwart Aurora’s bid. Complicating the whole affair was CanniMed’s offer to purchase another cannabis company, Newstrike Resources Ltd. (CVE:HIP). The war of words escalated, with Aurora filing a dissident circular claiming the Newstrike deal to be a weak move for investors, while CanniMed threw out charges of backdoor dealings against their shareholders in the fiasco. As it stands, the issues are now in the hands of Canadian regulators, as the fight grows beyond the two companies to have implications for Canadian capital markets as a whole.
It is a moment that investors will look towards down the line as a turning point in the industry. Young industries always jockey for position when the stakes are high, and whoever comes out on top will have a hold on the sector for years to come.
Knowing exactly how high the stakes are, each company tried to use the press to their advantage. “We therefore ask CanniMed shareholders to vote against the issuance proposal, and accept our offer, which not only pays a very significant premium, but also offers the opportunity to continue participating in the growth of the cannabis industry as part of Aurora, the most dynamic company in the sector,” said Aurora CEO Terry Booth in the statement.
MassRoots In Turmoil
Sometimes young industries need to explode before they find their footing, as with the dot-com bubble at the turn of the century. Nowhere was this truer this year than with marijuana social media website MassRoots Inc. (OTC:MSRT). It was a chaotic year for the company that began with debt default and layoffs and ended with whiz-kid CEO Isaac Dietrich losing, then regaining his place at the helm of the company. After a failed attempt to acquire cannabis law compliance specialist CannaRegs for $12 million, which was due to hesitation by company shareholders, Dietrich was ousted after allegations of drug use, sexual misconduct, and financial impropriety. Interim CEO Scott Kveton filed suit against Dietrich, claiming the 25-year old’s actions were the cause of the company’s precarious position. In December Dietrich fought back, and in an anticlimactic boardroom showdown, he regained his spot as CEO, ousting Kveton and three board members. MassRoots dropped the suit and Dietrich installed three new board members of his choosing. All is not over yet, as MassRoots still faces deep financial issues, bad enough, in fact, that the company had trouble paying rent this year on their downtown Colorado offices.
“The board’s resigned; my slate of candidates have been appointed,” Dietrich exclaimed in a statement to The Cannabist. “It didn’t require going to an actual vote … everyone realized that I was going to win.”
Cannabis Science Fights Back
Until the United States legalizes cannabis, the industry will continue to be in a precarious position, always wondering if the next raid is coming their way. That is what happened this year to Cannabis Science Inc. (OTC PINK:CBIS) when earlier this year the San Joaquin Sheriff's Department executed a search-and-seizure on their operations. Exactly 26.19-acres of Cannabis Science's industrial hemp became the target of authorities, forcing the company to fight back. In October Cannabis Science filed a complaint with the U.S. District Court for the Eastern District of California. Judge Kimberly Mueller, an appointee of former President Barack Obama initially ruled “no” on a Temporary Restraining Order request by the company against San Joaquin County, but later opened the door for such a move, which pleased Cannabis Science. The raid seems to be the doing of local authorities, as the company was working with the permission of the DEA, which goes to show that until the politics of cannabis are sorted out in the U.S., the industry will continue to suffer.
About the judge’s ruling, Cannabis Science CEO Raymond Dabney stated, “This is our opportunity to help the judge clearly understand the scope and importance of the educational and drug development work being done by the University group that includes Cannabis Science and its partners, and how it all ties together with the University programs, farming partners, local community educational programs, Native American incentive packages, and entrepreneurial programs for local economic growth and stability.”