Public Information in Cannabis Markets

Friends, happy new year to you all.  The only prediction that I’m going to make about this coming year in the Cannabis industry is that it’s going to continue to be bonkers and fun.  Beyond that, don’t be looking to a lawyer for advice on where the industry is going.

Not much has happened in the past week or so from a deal/capital/legal markets perspective (not surprising!), although Green Growth Brands’ press release from Monday is worth reading:

https://www.greengrowthbrands.com/press-releases/2018/12/31/green-growth-brands-reaffirms-commitment-to-takeover-aphria-inc/

I wrote last week about this hostile takeover strategy (LINK) and got a lot of interesting feedback, which is best left out of email (as the old lawyer saying goes, “the ‘e’ in ‘email’ stands for evidence”).  The latest press release from GGB has some interesting tidbits:

  • The press release (as best I can tell) was issued at 3:04pm ET on Monday, before trading ended for the day.  Typically, you issue a press release containing material news outside of market hours (mostly due to exchange rules), so that investors have time to digest it.  Also, it’s worth noting that this was filed on the afternoon before a market holiday.

  • They try to address the related party concerns that were highlighted by critics of the deal in the press (e.g., LINK).  GGB’s CEO also was on Bloomberg making similar points: LINK.  Related party issues get into fiduciary issues, which is why they’re such a hot button for regulators, investors, and, well, everyone.  Under US securities law, the rules are different for a management buyout (relative to a third-party buyout)– when an insider (CEO, director, 10% owner) is taking their own company private, they’re presumed to have insider information (because they do).  So, there’s a lot more scrutiny, a lot more disclosure, a lot more pressure on the independent board (who then hire their own advisors), a lot of opinions on price (valuation fight!), and a plethora of plaintiffs’ lawyers suing everyone anyway.  I’m definitely not saying that this situation is an insider transaction (I don’t know).  Instead, this is a good example of the fact that information and misinformation runs markets, and that business news is imperfect, no matter how hard the journalists try to get it right, and then layer dueling press releases on top of that (including those from short sellers).  It’s one of the reasons that tender offers are highly regulated – to try to control the information flow to investors, among other things – and why these are typically not launched through press releases.

  • They talk about the going-forward strategy and reaffirm their intent to launch a bid.  It’s not every day you see a smaller company take over a bigger company, where the target shareholders will control the venture after closing.  Again, a bold move in a market that is defying conventional public markets strategies.

  • There’s still no actual tender, nor a timeframe on when the tender is going to be launched.  As I said in my last email, it’s unorthodox (though I can’t say unprecedented because I just don’t know for sure) to launch a tender offer by press release first (a friend in Canada confirmed (but not giving legal advice!) that it’s not typical there either, and also that you don’t get do diligence the target in a hostile takeover).  GGB seems in the last paragraph of the release to be pushing Aphria hard to get Aphria to come to the table.  We’ll have to wait and see if that happens, and, if not, if/when GGB launches the tender.   To grossly misquote someone, they’ll face off against each other out in the street, down in Cannabisland. (I’ll be here all night)

Excelsior!

Written by: Marc Hauser