Falling stock prices force down cannabis industry CEO pay in 2022

Total compensation for CEOs of cannabis multistate operators fell in 2022 versus 2021, as tumbling marijuana stock prices last year drove down the equity-based pay component top executives received.

By contrast, salaries for chief executives at the largest MSOs were consistent from 2022 to 2021, according to the companies’ filings with federal regulators.

The continued fall in cannabis stocks last year – they’ve been sliding since early 2021 – helped to prevent any marijuana CEOs from receiving total compensation of more than $10 million in 2022.

By contrast, two marijuana MSOs reported that total compensation for their CEOs exceeded $10 million in 2021, with a third coming very close to that level.

The AdvisorShares Pure US Cannabis ETF – which tracks major U.S. marijuana stocks – is currently trading as MSOS on the New York Stock Exchange Arca at roughly $5 a share, down from around $21 at the beginning of 2022.

High interest rates, inflation and the lack of major reform to federal laws governing cannabis have weighed on marijuana stocks.

And the continued softness in share prices suggests that this year’s compensation levels will remain under pressure.

“Last year’s information was based on a hotter marketplace than currently,” Jim Finkelstein, executive vice president and managing director at California-based human resources and compensation consulting firm FutureSense, told MJBizDaily in an interview.

“And so, as a result, you may see the value of what was reported being much, much higher than what’s being reported this year because they’re adjusting to the change in the market price and the value of equity.”

Finkelstein said it’s also important to note that some stock-option grants awarded in 2021 could still be vesting and wouldn’t be reflected in compensation tables provided by multistate operators for 2022.

Compensation consultants specializing in the cannabis industry warned that few other conclusions can be drawn from information shared in regulatory filings and not to take reported numbers at face value.

The industry remains illegal under federal law, for example, making it harder to compare the pay of marijuana CEOs with those in mainstream industries.

“You’re dealing with apples and oranges and gorillas,” Finkelstein noted.

High market capitalizations at cannabis companies, for example, don’t necessarily correspond with higher total compensation for CEOs. 

At New York-based Curaleaf Holdings, for example, which has the highest market capitalization at more than $2 billion, CEO Matt Darin’s total compensation for 2022 was $1.1 million.

By comparison, New York-based Columbia Care’s market capitalization is approximately $200 million.

Columbia Care CEO Nicholas Vita had a total compensation of $5 million in 2022. Meanwhile, Columbia Care’s planned merger with Chicago-based Cresco Labs, announced in 2022, remains uncertain.

Even drawing comparisons from year-to-year or between individual CEO pay packages can be difficult, said Fred Whittlesey, a consultant at Seattle-based Compensation Venture Group.

“It’s a young industry. There’s a lot of turmoil and a lot of turnover at the executive level,” he told MJBizDaily in an interview.

Marijuana companies must get creative to attract and retain top talent, Whittlesey said, and each one is taking its own approach when it comes to executive pay.

That said, cannabis industry compensation tends to weigh heavily toward equity-based compensation rather than cash, a move designed to incentivize and reward company leaders for growth.

For example, Florida-based Trulieve Cannabis Corp. noted in regulatory filings that 87% of 2022 compensation for CEO Kim Rivers was “at-risk,” which means it isn’t guaranteed because it’s tied to shareholder value and other key performance indicators.

“We believe compensation should be structured to ensure that a significant portion of the total compensation opportunity for our named executive officers is directly related to our performance and other factors that directly and indirectly influence shareholder value,” according to the company’s regulatory filing.

Stock, options values misleading

Reported stock and options values in regulatory filings can be particularly misleading.

“Stock options have a theoretical value, but it doesn’t end up in your bank account that year,” Whittlesey said.

Filings show Jim Cacioppo, the CEO, chair and founder of Florida-based multistate operator Jushi Holdings, was awarded more than $6.7 million worth of options in 2022, for example.

“However, that number is deceiving because it is calculated based on the fair value of stock options in 2022 under FASB accounting standards,” a spokesperson for Jushi said via email, referring to the Federal Accounting Standards Board, a private standards-setting body.

A total of 2.83 million options were granted at an exercise price of $1.93 per option, and another 3 million options were granted at an exercise price of $1.75, according to filings.

But Jushi’s stock – which trades on the U.S. over-the-counter markets as JUSH – is currently trading at around 45 cents a share, indicating that most of the options are currently “underwater” and effectively worthless.

The spokesperson also pointed out that Cacioppo was entitled to a $750,000 cash bonus in 2022 but opted instead to take $250,000 in cash as well as warrants to be issued at a later date valued at approximately $750,000.

Whittlesey said it’s also crucial to examine the vesting periods of stocks and options – an area where the marijuana industry is particularly creative when it comes to compensating its chief executives, he said.

Options usually vest in three to four years. But in the cannabis industry, vesting periods can be as short as three months.

For example, a third of Cacioppo’s 2,830,000 options vested on July 28, 2022, when the stock closed at the exercise price of $1.93.

Another third vested on Jan. 1, 2023. The stock closed at 73 cents on Jan. 3, the first day of trading of 2022, meaning the options were underwater.

The final third vest on Jan. 1, 2024.

Whittlesey said shorter vesting periods are designed to retain and attract talent in a uniquely challenged industry.

He said boards are effectively saying, “I’m not sure if the government’s going to put us out of business tomorrow.”

Taxation, production, inflation and regulations are only a few of the challenges CEOs are grappling with, Whittlesey added.

“Wouldn’t you like this job?”

Bonuses in a bad year

A number of marijuana industry CEOs were awarded hefty bonuses in 2022, despite many companies reporting lower-than-expected revenue in a tough year.

But key performance indicators (KPIs) in the cannabis industry aren’t necessarily tied to profitability of a company or revenue growth.

Kara Bradford, CEO and chief talent officer at Seattle-based recruitment firm Viridian Staffing, told MJBizDaily in an interview that bonuses can be tied to KPIs such as geographic footprint growth or years served in a role.

Peter Caldini, the former CEO of New York-based Acreage Holdings, wasn’t eligible for his special bonus last year under the company’s short-term incentive plan, which was based on pre-established targets for earnings before interest, taxes, depreciation and amortization (EBITDA), according to regulatory filings.

But Caldini was awarded a separate bonus totaling $2.5 million, paid out in $833,333 installments over three quarters.

“We consider your continued service and dedication to Acreage Holdings, Inc. (the “Company”) and find your continued efforts critical to the success of the Company,” board Chair Kevin Murphy wrote in a letter to Caldini dated July 11, 2022.

“To incentivize you to remain employed with the Company and to address any concerns about your job security, we are pleased to offer you a series of bonuses, as described in this letter agreement.”

Caldini stepped down as CEO in June, and former Chief Operating Officer Dennis Curran took the helm.

A spokesperson for Acreage told MJBizDaily via email that the company doesn’t comment on former employees.

Turnover and turmoil

Co-CEOs led both New York-based Ascend Wellness Holdings and Nevada-based Planet 13 Holdings in 2022.

Founder and former Ascend CEO Abner Kurtin stepped into the executive chair role last September after a battery charge against him was dropped.

Chief Financial Officer Daniel Neville and President and co-founder Frank Perullo took the helm as co-CEOs, which is why all three are listed in the table above.

In May, John Hartmann was appointed CEO of the company.

Ascend did not respond to MJBizDaily requests for comment.

Whittlesey warned that having two CEOs can be a sign of weakness in governance.

From a compensation standpoint, he said, co-chief executives could receive half of a CEO package.

On the other hand, both employees could be capable of being a CEO and should be compensated accordingly.

“Now we’re in a conundrum, because there’s two of them,” Whittlesey said.

“And it’s not fair to the company or the shareholders to pay for two CEOs.”

Planet 13’s Robert Groesbeck and Larry Scheffler have served as co-CEOs since 2018.

Each earned a $500,000 base salary and another $254,000 under the company’s non-equity incentive plan in 2022.

The amount was awarded for “corporate objectives and key metrics applicable to the executive, respectively, and is reviewed and approved by the Compensation Committee before payment,” according to regulatory filings.

Finkelstein declined to comment on a specific company, but he said it’s common for co-CEOs to work in hybrid roles as they transition from a founder-led business to a more mature company.

“They are all trying to figure it out, and they need to be allowed to experiment with that without judgment,” he said.

Source: https://mjbizdaily.com/falling-stock-prices-force-down-cannabis-industry-ceo-pay-in-2022/