Pipped at pot merger post, WeedMD swaps CEO

The Beacon Herald - - NEWS - DALE CARRUTHERS POST­MEDIA NEWS

Af­ter be­ing ditched for a much big­ger part­ner, a South­west­ern On­tario pot pro­ducer has re­placed its chief ex­ec­u­tive in a move that could fore­shadow big shake­outs com­ing as cannabis com­pa­nies con­sol­i­date ahead of the drug’s le­gal­iza­tion this fall.

WeedMD, an Aylmer-based med­i­cal mar­i­juana grower that re­cently ex­panded to Strathroy, had been on track to merge with Hiku Brands Co. Ltd. in a $240-mil­lion deal hatched in the spring.

But the agree­ment was scut­tled Tues­day — Hiku struck a deal with the coun­try’s largest cannabis com­pany in­stead — send­ing WeedMD’s stock tum­bling nearly 16 per cent on Wednes­day, while Hiku’s share price shot up by even more.

Ex­pect more high-profile merg­ers and ac­qui­si­tions in Canada’s nascent cannabis in­dus­try, says a Ry­er­son Uni­ver­sity busi­ness pro­fes­sor who stud­ies it.

“There’s a mas­sive real es­tate grab go­ing on right now,” Brad Pou­los of the Ted Rogers School of Man­age­ment said. “I think we’re go­ing to see more of it, too.”

In the af­ter­math of the nixed deal, WeedMD ap­pointed for­mer chief fi­nan­cial of­fi­cer Keith Merker of Lon­don to helm the com­pany, re­plac­ing chief ex­ec­u­tive Bruce Daw­son-Scul­ley, who will serve as an ad­viser dur­ing the tran­si­tion.

“There’s no real fall­out from this breakup,” said Merker, in Toronto Wednes­day for the com­pany’s an­nual share­hold­ers meet­ing. “We need to put our heads down and fo­cus on the busi­ness. These (merger and ac­qui­si­tion) trans­ac­tions can be a very big dis­trac­tion if you al­low them to be.”

The drop in stock prices was ex­pected, said Merker, who coun­tered by point­ing to the $10-mil­lion ter­mi­na­tion fee paid to his com­pany.

“It bol­sters up our bank ac­count, which is great,” he said. “We can very com­fort­ably go about ex­e­cut­ing our busi­ness plan.”

With 70 em­ploy­ees, WeedMD has op­er­ated an 8,000-squareme­tre fa­cil­ity on the for­mer Im­pe­rial Tobacco site in Aylmer since 2016. The com­pany re­cently ex­panded with a green­house near Strathroy, where it ex­pects to har­vest its first crop in Septem­ber.

WeedMD re­cently struck a deal to be a med­i­cal mar­i­juana sup­plier for Shop­pers Drug Mart, be­com­ing the small­est com­pany to part­ner with the giant Cana­dian phar­macy chain.

Shortly af­ter news of the ter­mi­na­tion with Hiku was made pub­lic, Canopy Growth Corp., a Smith Falls-based grower with pro­duc­tion sites across Canada and a foot­print in eight coun­tries, an­nounced it will ac­quire Hiku in a $250-mil­lion all-stock deal.

Hiku is the owner of Tokyo Smoke, a Toronto-based hip­ster cof­fee shop and mar­i­juana ac­ces­sory chain, and DOJA Cannabis Com­pany Ltd., a li­censed pro­ducer in Kelowna, B.C.

Hiku is mak­ing ag­gres­sive moves to get into prov­inces where the sale of recre­ational pot will be open to the pri­vate sec­tor, fil­ing ap­pli­ca­tions for at least a dozen store­fronts in Cal­gary and en­ter­ing a lot­tery sys­tem to set up shop in Ed­mon­ton.

“Hiku equals brands. Canopy is built on brands. So we com­bined them,” Canopy chief ex­ec­u­tive and chair­man Bruce Lin­ton said in a state­ment.

Pou­los called the the move “one of the smartest ac­qui­si­tions” Canopy could have made, but he raised con­cerns about what the sting of sim­i­lar deals could mean for the cannabis in­dus­try.

“I get con­cerned that there won’t be space for the lit­tle guy in this in­dus­try,” he said, not­ing the fed­eral govern­ment isn’t lim­it­ing the con­sol­i­da­tion.

“But, bar­ring some sort of reg­u­la­tion against it, you can’t stop CEOs from do­ing what makes sense to them.”

-Lon­don Free Press

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