The Globe and Mail - 13.11.2019

B2 O THEGLOBEANDMAIL| WEDNESDAY,NOVEMBER13,2019

November is Financial Literacy Month

It’sagreattimetotalkaboutmoneywithourkidsandCFEEhasresourcestohelp.

“Money andYouth:A Guide

to Financial Literacy”is a

great resource for teens and is

available in print, online or ebook.

Over 500,000 print copies in

distribution.

http://www.moneyandyouth.cfee.org.

CFEE Phone: (416)968-2236. Toll Free: (888)570-7610. Email: [email protected]. Website: http://www.cfee.org

supportedby

“TalkWith Our Kids About

Money” is a program helping parents,

guardians, and teachers with fun,

engaging, easy to use activities. Over

700,000 youth participated last year.

http://www.talkwithourkidsaboutmoney.com

CANADIANFOUNDATIONFORECONOMICEDUCATION

FONDATIONCANADIENNED’EDUCATIONECONOMIQUE

supportedby

| REPORTONBUSINESS

Canada’s association of securities regula-
tors has called out publicly traded canna-
bis companies for not disclosing when
their executives and directors have had fi-
nancial interests in companies they have
bought and sold.
The Canadian Securities Administra-
tors, the umbrella organization of the 13
provincial and territorial securities regula-
tors, issued a notice of guidance on Tues-
day directly to cannabis companies, urging
them to strengthen their disclosures and
“address concerns about potential con-
flicts of interest” so that investors have
“the information they need to make in-
formed decisions.”
The notice comes more than a year after
one of Canada’s largest licensed cannabis
growers, Aphria Inc., came under fire for
several related-party deals that benefited
company insiders. In March, 2018, the
company purchased Nuuvera Inc., a much
smaller cannabis company. Four Aphria
executives and another three directors
personally owned stock in Nuuvera. Their
stake in Nuuvera was not disclosed to
Aphria investors at the time because, the
company said, the size of their investment
rendered their ownership immaterial. The
group first purchased Nuuvera shares
worth a combined $900,000 in August,

situations where there is cross-ownership

that is not being disclosed.”

The CSA’s note on Tuesday states that

seven of Canada’s 13 securities commis-

sions – Ontario, British Columbia, Quebec,

New Brunswick, Saskatchewan, Manitoba

and Nova Scotia – have observed “inade-

quate transparency” around such cross-

ownership.

The regulators “are of the

view that it is critical for par-

ties to a proposed M&A

Transaction to provide each

of their security holders with

sufficient disclosure to ad-

dress concerns about poten-

tial conflicts of interest. This

disclosure will allow security

holders to make a better in-

formed determination about

the merits of the M&A trans-

action,” the note states.

The note also states that

some cannabis companies

have not given enough con-

sideration to board mem-

bers’ ties to the company be-

fore identifying them as “independent.” In

addition, there has been more than one in-

stance when the CEO and the chair of the

board are the same person, a situation that

regulators have discouraged, the note

states. “Investors want to know that struc-

tures are in place to permit the board to

operate independently.”

2017, and when Aphria purchased Nuuvera

for $425-million in March, 2018, their col-

lective investment became worth $4.75-

million.

Aphria was also targeted by a short-sell-

er report in late 2018 that made similar al-

legations. The report alleged that Aphria

had overpaid for two South American

companies, as well as a Jamaican company,

owned by companies with

links to financier Andy De-

Francesco, a founding inves-

tor of Aphria and close asso-

ciate of several insiders.

Aphria denied that it over-

paid and said the acquisition

had been approved by the

company’s independent

board members. Aphria

chief executive Vic Neufeld

resigned a little more than a

month after the short-seller

report was released. A special

committee established to re-

view the transaction deter-

mined that “certain of the

non-independent directors

of the company had conflicting interests in

the Acquisition that were not fully dis-

closed to the board.”

In an interview, the Ontario Securities

Commission’s director of corporate fi-

nance, Sonny Randhawa, declined to com-

ment about specific cases. Speaking gener-

ally, he said, “We’re concerned about these

Domesticregulatorstellcannabiscompanies

toimprovetheirconflict-of-interestdisclosures

GREGMcARTHUR
MARKRENDELL

TheCanadian

Securities

Administrators...

issuedanoticeof

guidanceonTuesday

directlytocannabis

companies,urging

themtostrengthen

theirdisclosuresand

‘addressconcerns

aboutpotential

conflictsofinterest.’

McDonald’s Corp.fired its chief

executive last week for having a

consensual relationship with an

employee. But some workers say

the company’s problems go well

beyond the top executive.

On Tuesday, former McDo-

nald’s employee Jenna Ries filed a

class-action lawsuit against the

fast-food chain and one of its Mi-

chigan franchisees for sexual ha-

rassment. She’s one of at least 50

workers who have filed charges

against the company with the U.S.

Equal Employment Opportunity

Commission or in state courts

over the past three years.

The American Civil Liberties

Union and Fight for $15 are among

those backing the plaintiffs, as is

the Time’s Up Legal Defence

Fund. Ms. Ries is seeking at least

US$5-million in damages for her-

self and other workers.

Sharyn Tejani, the director of

the Time’s Up Legal Defence

Fund, said fast-food workers can

lose shifts or be fired if they report

harassment. Former CEO Steve

Easterbrook, on the other hand, is

still eligible for millions of dollars

in salary. McDonald’s said Mr.

Easterbrook violated company

policy forbidding managers from

having romantic relationships

with subordinates.

Ms. Ries, 32, said the problems

in the Mason, Mich., restaurant

began soon after she started work-

ing there in the fall of 2017 and

continued for more than a year.

She alleges that the manager ig-

nored her co-worker’s repeated

harassment of her and her col-

leagues, including groping, and

physical and verbal assault.

Ms. Ries said she often cried on

the way to work. Eventually she

transferred locations, but the co-

worker who allegedly harassed

her remained at the original loca-

tion.

“It’s definitely difficult for me

to come forward, but I want to en-

courage other people,” Ms. Ries

said. “I want McDonald’s to recog-

nize that they have a problem and

make sure this doesn’t happen to

others.”

Ms. Ries said she finds it ironic

that McDonald’s fired Mr. Easter-

brook last week for violating a

policy forbidding supervisor-sub-

ordinate relationships.

“They barely have a policy

[against sexual harassment],” Ms.

Ries said.

McDonald’s and its franchisees

are required to comply with state

and federal anti-discrimination

laws. Beyond that, McDonald’s

generally claims that workers at

franchised restaurants are not its

employees and doesn’t spell out

how claims should be handled.

In January, the Chicago-based

company released an enhanced

policy against discrimination, ha-

rassment and retaliation.

“There is a deeply important

conversation around safe and re-

spectful workplaces in communi-

ties throughout the U.S. and

around the world, and McDo-

nald’s is demonstrating its contin-

ued commitment to this issue,”

McDonald’s said in a statement.

Last month, McDonald’s intro-

duced a new program for U.S. em-

ployees and said franchisees sup-

ported it. Franchisees, who own

95 per cent of McDonald’s U.S. res-

taurants, aren’t required to offer

the training.

Ms. Ries has also filed charges

with the Equal Employment Op-

portunity Commission, which is a

precursor to filing charges in fed-

eral court. The case could take

years to resolve.

ASSOCIATEDPRESS

Former

McDonald’s

employee

suesfor

harassment

DEE-ANNDURBIN

Organigram Holdings Inc.sent a shock
through the cannabis sector on Monday
evening when the company revealed a dra-
matic revenue miss due to industry over-
supply and product returns – two prob-
lems that are top of mind for cannabis
companies and investors during a critical
week of earnings.
Organigram now expects its quarterly
sales to decline 34 per cent compared with
the previous quarter. The announcement
sent the company’s share price down 20
per cent on Tuesday.
Producers are now growing more can-
nabis than is being sold in legal retail
stores, and wholesale price compression
and product returns are starting to show
up in financial statements.
New Brunswick-based Organigram
doesn’t report its fourth-quarter financial
results until Nov. 25, but it is expecting to
announce $16.4-million in sales, down
from $24.8-million in the preceding quar-
ter. The company said it shipped $20-mil-
lion worth of product, but expects $3.7-
million to be returned unsold.
“While we have largely anticipated little
to no top-line growth for upcoming Cana-
dian LP [licensed producer] results, the
magnitude of the sequential decline is un-
expected,” wrote Eight Capital analyst
Graeme Kreindler in a note on Tuesday.
Organigram blamed its poor quarter on
the low number of retail stores in Ontario –
only 24 legal stores are open – as well as the
increase in supply across the industry. In
the lead up to thewave ofearnings this
week, analysts have been warning that the
vaults of provincial wholesalers are filling
up with product that retailers don’t want
and wholesalers are making fewer new
purchase orders.
Michael Gorenstein, chief executive of
Cronos Group Inc., highlighted the chal-
lenges facing the Canadian market on an
analyst call on Tuesday morning, after Cro-
nos reported $12.7-million in quarterly
sales, up from $10.2-million in the preced-
ing quarter but short of consensus expec-
tations.
“The number of retail stores as well as
warehousing and logistics needs are in the
process of catching up to meet the demand
of consumers. As a result, we’re still not

able to fully reach the long-term total ad-

dressable market represented by this pop-

ulation,” Mr. Gorenstein said.

Although Cronos doubled the number

of kilograms of cannabis it

sold in the quarter, a large

portion of those sales were

low-priced bulk sales to oth-

er producers. Mr. Gorenstein

acknowledged that Cronos

was “opportunistically” un-

loading cannabis on the

wholesale market, owing to

expectations that prices

were about to drop sharply.

Tilray Inc., which report-

ed after markets closed on

Tuesday, showed relatively

strong sales growth, with

revenue increasing to

US$48.2-million from US$42-

million the previous quarter.

However, the company re-

ported a net loss of US$35.7-million and an

adjusted earnings before interest, taxes,

depreciation and amortization (EBITDA)

loss of US$23.5-million, both worse than

analysts had expected.

Cannabis companies are hoping that

derivative products, such as cannabis-in-

fused edibles and vaporizers, will help

drive sales and widen profit margins when

they enter the market later this year. But

concerns are emerging that these “Canna-

bis 2.0” products may take longer than ex-

pected to show up on store shelves.

On Tuesday,MediPharm Labs Corp.,a

cannabis-extraction company based in

Barrie, Ont., reported strong revenue

growth as well as a $5.4-million profit,

something rare in the canna-

bis industry. Still, the compa-

ny’s stock dropped 12.5 per

cent.

In a Tuesday morning ana-

lyst call, MediPharm’s CEO

Pat McCutcheon said that de-

rivative product sales might

not have a significant impact

on the company’s revenue

until the second half of 2020.

“Various retail distribu-

tion models used by different

provinces have resulted in

backlogged orders ... [and]

we expect the cadence will

likely not measure up to ini-

tial expectations in the near

term,” Mr. McCutcheon said.

All eyes are now on Canopy Growth

Corp. and Aurora Cannabis Inc., Canada’s

two largest cannabis growers, which both

report earnings on Thursday.

ORGANIGRAM(OGI)

CLOSE:$3.57,DOWN89¢

CRONOSGROUP(CRON)

CLOSE:$10.40,DOWN29¢

TILRAY(TLRY)

CLOSE:US$21.57,DOWN35USCENTS

MEDIPHARMLABS(LABS)

CLOSE:$4.42,DOWN63¢

Organigramexpectssalestoslump

onpotoversupply,productreturns

Company’ssharesslide

20%afteritwarnsabout

quarterlydeclineamid

mixedresultsfromrivals

MARKRENDELL
CANNABISPROFESSIONALREPORTER

Organigram,whoseplantsareseengrowinginafacilityinMonctononOct.12,saysit

expectstoannounce$16.4-millioninsalesinthefourthquarter,downfrom$24.8-millionin

theprecedingquarter.JOHNMORRIS/THEGLOBEANDMAIL

Whilewehave

largelyanticipated

littletonotop-line

growthforupcoming

CanadianLP

[licensedproducer]

results,the

magnitudeofthe

sequentialdecline

isunexpected.

GRAEMEKREINDLER

ANALYST,EIGHTCAPITAL