CHAPTER 09 Governance in a Nascent Industry: Lessons from Canada’s “Green Rush”
Canada’s Green Rush: Growing Pains In July 2018, Aurora Cannabis Inc., a company listed on the Toronto Stock Exchange (TSX), acquired the then TSX-listed MedReleaf Corp. in a $3.2-billion deal, the largest cannabis transaction at the time. In the months that followed, cannabis issuers and investors poured billions of dollars into the industry through substantial M&A and investment activities. More recently, however, many cannabis issuers have faltered. Demand for cannabis and derivative products has proven to be lower than anticipated, and many issuers have not been able to generate a profit. In addition, many cannabis issuers have struggled to comply with disclosure obligations and have faced increasing stakeholder demands for improved governance structures and greater accountability. Many of the founders of Canada’s largest issuers in the industry have been ousted. At the time of writing this report, at least 14 cannabis issuers had filed for creditor protection or entered into receivership proceedings in 2020, and more filings are expected. In the following sections, we discuss three key governance lessons learned from Canada’s cannabis experience and offer recommendations for boards and management of issuers in any nascent industry. Board Composition: The Cannabis Industry Learns from Common Pitfalls of Nascent Issuers BOARD COMPOSITION IS OFTEN NOT A TOP CONCERN FOR NASCENT ISSUERS The explosion of the cannabis industry seemingly happened overnight. Though many of its major players had been operating in the medical cannabis space for some time, the tabling of draft legislation for a recreational-use cannabis regime in April 2017 (targeted to become effective on July 1, 2018) ignited a groundswell of public and investor excitement over an industry expected to rival Canada’s beer and wine sectors. The ensuing 18 months saw a flurry of M&A and capital-raising activity in the cannabis space, as producers jockeyed to increase production capacity and establish themselves as industry leaders in anticipation of recreational legalization.
Many cannabis issuers have struggled to comply with disclosure obligations and
have faced increasing stakeholder demands
for improved governance structures and greater accountability.
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Davies | dwpv.com
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