The future of Maricann’s $70-million financing looks grim. In its public statement, Maricann noted it has been ‘advised orally by the underwriters that they are not prepared to proceed.’ However, the deal has yet to be formally terminated.Christopher Katsarov/The Globe and Mail
The chairman and another director of Maricann Group Inc. have resigned, with a third facing a probe of his stock sales, after the Ontario Securities Commission inquired about trading activity at the marijuana producer.
The company also confirmed that chief executive Ben Ward is the subject of an OSC investigation into his activities as CEO of Canadian Cannabis Corp. – prior to leading Maricann.
News of the investigation became public on Tuesday and is apparently the reason Maricann's latest, $70-million financing is close to collapsing, after the underwriters told the company they no longer support the offering. The deal, however, has yet to be formally terminated.
Chairman Neil Tabatznik and director Raymond Stone resigned early Wednesday after the OSC raised questions about their share sales in late January – right before the company announced a large equity financing. The combined share sales were worth about $8-million.
Maricann also revealed that trading activity connected to director Eric Silver, a self-employed doctor, is under review. The company's independent directors have set up a special committee, which is looking into the matter.
Director Paul Pathak has been named interim chairman of the board.
Maricann's shares fell 22 per cent Wednesday after they resumed trading following a regulatory halt. The company is now worth $210-million, less than half its peak value in late January.
Until now, Maricann had a much smaller profile than Canadian marijuana producers such as Canopy Growth Corp. and Aurora Cannabis Inc. But that hasn't stopped investors from plowing money into the company or other junior ventures ahead of the Canadian government's legalization of recreational marijuana this summer.
Many of these firms have watched their values soar in a matter of months, leading to market bubble fears. Their rapid rise has also raised questions about corporate governance and internal controls.
"Going above and beyond in terms of corporate governance will be critical to bridging the credibility gap in a new industry and live up to what institutional investors have come to expect of high investment grade companies," Kingsdale Advisors wrote in a note to potential cannabis clients last week.
Maricann operates one of 22 fully licensed facilities in Canada where cannabis plants can be grown and extracts can be processed. It is able to sell both types of products to patients. The company was founded in 2013 and started trading on the Canadian Securities Exchange in April, 2017.
It is currently expanding its growing facility in Langton, Ont., about two hours southwest of Toronto. To raise cash for the project, the company launched a $70-million equity financing on Jan. 29, with Eight Capital and Canaccord Genuity as the lead underwriters.
On Feb. 8, the OSC wrote to Cassels Brock & Blackwell LLP, the deal's lead legal adviser, asking the company whether it would tell investors that Mr. Ward was under investigation for his actions at his previous company.
Cassels Brock, Eight Capital and Canaccord Genuity did not respond to requests for comment.
The letter asked if Maricann "would be prepared … to disclose" the investigation in the final prospectus, which would go to investors buying the new shares.
On Wednesday, Maricann said in a statement that "prior to this, the company was unaware of the matter," adding that it is "unaware of any facts that could reasonably lead it to conclude that this investigation has had, or will have, any impact on the ability of Mr. Ward to properly and effectively carry out his duties as CEO or director of the company."
At this time, the details of the investigation are unknown. Maricann said the OSC has informed the company that it cannot currently provide any more information. Mr. Ward has told the company he is co-operating with the investigation and "believes he has acted at all times in a manner that is compliant with applicable securities law," according to the statement.
The OSC sent a second note to Maricann on Feb. 9 inquiring about trades made by Mr. Tabatznik and Mr. Stone. Insider trading records show that Mr. Tabatznik sold 850,000 shares of Maricann for almost $3.6-million on Jan. 23 and 24 and that Mr. Stone sold 1.04 million shares for $4.4-million on Jan. 22 and 23.
Tim Kiladze