Business
Nasdaq objects to Canopy plan to consolidate US cannabis revenue
The Nasdaq stock exchange objects to Canopy Growth’s plan to eventually consolidate the financial results of Canopy USA, according to a regulatory filing by the Canadian company with the U.S. Securities and Exchange Commission.
The disclosure raises questions about whether the Ontario-based cannabis producer could keep its shares listed on the Nasdaq if it proceeds with its current plan to enter the U.S. marijuana market more quickly.
Canopy on Tuesday announced a plan to speed its entry into the American market by launching Canopy USA, which would purchase the three American cannabis businesses that Canopy had agreed to buy once recreational marijuana was legal under U.S. law.
Those businesses are New York-based multistate operator Acreage Holdings, California extractor Jetty Extracts and Colorado-headquartered cannabis edibles maker Wana Brands.
Canopy’s proposal calls for Canopy USA, not Canopy Growth, to own the three assets.
Under the plan, Canopy Growth would hold nonvoting, exchangeable shares in Canopy USA, creating “a ringed-fence structure” between it and Canopy USA, the company previously said.
“Nasdaq has proposed that such (financial) consolidation is impermissible under Nasdaq’s general policies,” according to the filing.
Canopy shares trade as CGC on the Nasdaq and as WEED on the Toronto Stock Exchange.
A Canopy spokesperson told MJBizDaily that the company’s proxy filing did not include concerns by the TSX.
“However, as we disclosed, Nasdaq has raised concerns specifically regarding our intention to consolidate the financials of Canopy USA and we have had ongoing communication with them and will continue to work to support compliance with their rules and regulations,” the spokesperson said.
“We understand that we have an obligation to consolidate these results under U.S. GAAP rules and we believe there is time to continue this dialogue with Nasdaq, as Canopy’s results would not be consolidated until after the closing of the proposed transactions next year and we will continue to work with Nasdaq in an effort to resolve their concerns.”
Canopy said it doesn’t agree with the basis of the Nasdaq’s objection.
“The company disagrees with Nasdaq’s potential application of its general policies as the basis for its objection since it contradicts the Company’s financial reporting requirements under U.S. GAAP including its application to THC plant touching businesses,” the company said in its SEC filing.
Canopy added that it intends to comply with the SEC’s guidance on the application of U.S. generally accepted accounting principles (GAAP) for financial reporting purposes.
Canopy said it is in regular dialogue with auditors, regulatory bodies and stock exchanges, but “there is no assurance Nasdaq will harmonize their general policies with the SEC accounting guidance.”
“As such, there can be no assurance that we will remain listed on the stock exchanges we are currently listed on, which could have a material adverse effect on our business, financial condition and results of operations.”
In a note to investors, Owen Bennett, a cannabis equity analyst for New York-based investment bank Jefferies Group, wrote that Canopy’s filing suggests the company’s continued Nasdaq and TSX listings might be uncertain.
Jefferies noted that many “might have assumed” the new structure had the informal blessing of the exchanges.
“In last night’s proxy, however, it appears this is not the case, with NASDAQ actually opposing the structure, and Canopy flagging risk of delisting,” the analyst wrote.
“What is very clear now though, is that developments here now become an absolute critical watch-out, not only for Canopy,” because, he noted, delisting might cause the stock to drop.
He said broader Canadian licensed producers, which can potentially do the same and buy U.S. assets, are watching closely, as are American multistate operators that could potentially adopt the same structure and uplist to a major exchange.
“This is why SAFE (the Secure and Fair Enforcement Banking Act) passing could also be important, as this, alongside the recent Biden orders around a scheduling review, could help sway the exchanges decision, while it is also possible one exchange may OK it – likely the TSX – and another still says no – likely Nasdaq,” according to Jefferies.
Source: https://mjbizdaily.com/nasdaq-objects-to-canopy-plan-to-consolidate-us-cannabis-revenue/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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