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Pot industry struggles as more HBC shares

executives leave companies
Businesses face challenge
of attracting quality leaders
as high managerial turnover
rate becomes a trend
TIM KILADZE
Executive turnover in Canada’s cannabis
sector is accelerating, with another chief
executive pushed out amid an industry-
wide effort to turn money-losing pot pro-
ducers into profitable ones.
Supreme Cannabis Co. Inc. has re-
placed CEO Navdeep Dhaliwal with board
member Colin Moore, who will serve as
interim CEO. The move extends months
of senior management shuffles at the can-
nabis producer, which has seen its share
price plummet 81 per cent from its peak.
Supreme attributes the turnover to its
efforts to morph into a consumer prod-
ucts company, broadening its scope from
the production of bulk cannabis. In Octo-
ber, the company also announced the de-
parture of co-founder John Fowler, who
had once served as Supreme’s CEO, and
much of the executive team has changed
in the past 12 months.
This kind of managerial evolution is
one of the industry’s hottest trends, with
cannabis companies pushing out foun-
ders and top executives to bring in leaders
with experience in more mature consum-
er products industries. Mr. Moore, Su-
preme’s interim CEO, used to run Star-
bucks Canada. (Mr. Dhaliwal will remain
on Supreme’s board of directors.)
The struggle, however, is in luring qual-
ity leaders. “With the challenging times in
the cannabis sector, it has become more
difficult for companies to attract top tal-
ent from the consumer products sector –
or any sector for that matter,” said Les
Gombik, an executive recruiter who works
with cannabis companies.
While many executive candidates like a
challenge, “they are also smart enough to
ask the tough questions to determine if
turnaround prospects are realistic,” he
said, adding that these leaders also “com-
mand a premium both on cash compen-
sation and upside potential [stock or
stock options].”
Matching pay expectations is harder to
do in this market because many investors
have been burned and now demand that
companies get their balances sheets in or-
der. The Horizons Marijuana Life Sciences
Index ETF, which broadly tracks the in-
dustry, has fallen 68 per cent from its peak
in October, 2018.
There have also been many jobs to fill.
Supreme’s turnover follows the firing of
former Canopy Growth Corp. chief exec-
utive Bruce Linton this summer, as well as
the departures of top leaders at Aphria
Inc. last January. Both the chairman and
the CEO of CannTrust Holdings Inc. also
exited this summer after Health Canada
discovered the company was growing can-
nabis in unlicensed rooms.
Most recently, Aurora fired chief corpo-
rate officer Cam Battley in late December.
At the time of his departure, it was not
clear whether he left on his own accord,
but Aurora later clarified in a statement to
The Globe and Mail that Mr. Battley “was
surge after
Baker group,
Catalyst reach
asked to step away from his role.”
Despite the odds, new hires are possi-
takeover deal
ble. On Monday, Canadian-listed cannabis
company Harvest Health & Recreation
Inc. announced the hiring of Ron Good- ALEKSANDRA SAGAN TORONTO
son as chief operating officer. Mr. Good-
son previously spent 35 years as a vice-
president at PepsiCo Inc. Shares in Hudson’s Bay Co. jump-
Like much of the sector, Supreme’s ed nearly 10 per cent Monday after
shares have struggled of late. The compa- a deal that appeared to put a
ny once made a name for itself as a whole- months-long privatization battle
saler, selling bulk, unfinished cannabis to to rest.
other licensed producers. This market in HBC shares climbed 96 cents,
particular is now awash in supply because or 9.72 per cent, to $10.84 on the
more greenhouses have been licensed to Toronto Stock Exchange.
grow marijuana, and the supply glut has The lift came after a group led
depressed prices. by HBC executive chairman Ri-
When the company last reported quar- chard Baker boosted its privatiza-
terly earnings in November, its $11.4-mil- tion offer for the retailer to $11 a
lion in revenue was less than half of analy- share late Friday night.
sts’ average expectations. The company is The amended offer won the ap-
now focused on finishing more of its proval of dissident shareholder
product in-house and selling it through its Catalyst Capital Group Inc., which
own brands – the model most associated controls about 17.5 per cent of the
with mature consumer products compa- company’s common shares. The
nies. minority shareholder entered in-
Although a number of producers are to a voting and support agree-
trying to pivot in the same way, Supreme ment with HBC and the contin-
has some existing brand appeal that could uing shareholders behind the
help with its change in strategy. The com- privatization offer.
pany’s “transition away from wholesale, Catalyst is “pleased” to support
expected in full by the third fiscal quarter, this offer, which is “well above”
couldn’t come at a better time, as we be- the Baker-led group’s first pro-
lieve consumers have begun to prefer cer- posed price of $9.45 a share, said
tain brands, where Supreme’s 7Acres Gabriel de Alba, managing direc-
should stand out,” CIBC World Markets tor and partner of Catalyst, in a
analyst John Zamparo wrote in a note to statement released Friday.
clients after the company reported earn- The private equity investment
ings in November. firm had made several moves to
Supreme declined to comment. block the Baker group, including a
counteroffer of $11 a share and a
successful trip to the Ontario Se-
curities Commission, which di-

Cannabis stores are vulnerable to thefts: experts
JAMESON BERKOW
CANNABIS PROFESSIONAL REPORTER
The legalization of cannabis in Canada has
reduced criminal involvement in the long-
illicit pot trade, but experts warn ending
prohibition has also created new opportu-
nities for law-breakers.
Cannabis security expert David Hyde
says the situation has improved since the
prohibition era, when thefts from grey-
market cannabis shops would often go un-
reported, but criminals are adapting to the
new regime.
“The reality is the criminals are learning
more about this new legalized market,
where there are very attractive and valua-
ble commodities that are only available in
certain places,” said Mr. Hyde, former pres-
ident of 3 Sixty Secure Corp. who now runs
his own cannabis consultancy specializing
in security.
He says cannabis stores are attractive to
criminals as they have both cash and high-
value items in the same location. “You’ve
got the double-whammy effect there,” he
adds.
Last month, a transport vehicle loaded
with “packaged, finished cannabis prod-
ucts” from Aleafia Health was stolen while
sitting parked in an unnamed third-party’s
facility. Toronto-based Aleafia was quick to
release a statement dismissing the loss as
“not material,” but Mr. Hyde says the in-
cident was a consequence of federal can-
nabis regulations that make only “a couple
of parenthetical references to transporta-
tion.”
“Some of these [producers] use their
own trucks and they aren’t fit for the pur-
pose, or they hire a mom-and-pop oper-
ation or a standard freight company that
one day might carry a pallet full of cucum-
bers then they’re going to put cannabis in
there the next day,” Mr. Hyde said. “Be-
cause there are no strict regulations in
place, they can do these things.”
One week after the cannabis truck was
stolen, a store clerk was assaulted during
an armed robbery of a YSS Cannabis loca-
tion in northwestern Edmonton. One man
held the front door closed while another
allegedly punched a female employee in
the face while demanding cash and mari-
juana. The incident marked the city’s sec-
ond legal pot store robbery, after a Canna-
mart location in western Edmonton was
robbed on Dec 12. Both robberies involved
two men: one to watch the door, while the
other gathered money and merchandise,
with neither needing to worry about po-
tential witnesses outside the store catch-
A customer walks into a cannabis store in Toronto on Monday. Pot stores often cover their
windows to comply with regulations that require them to hide their products from public
view. Experts suggest this makes pot stores vulnerable to criminal activity because it
shields perpetrators from potential witnesses outside. COLE BURSTON/THE CANADIAN PRESS
ing them in the act.
Mike Vioncek, chief operating officer of
legal cannabis retail chain Fire & Flower,
says that’s in part because of various fed-
eral and provincial rules that require can-
nabis products be hidden from public
view, meaning the easiest way for retailers
to ensure compliance is to simply cover
their exterior windows.
Having to put security film on windows
is “the biggest [security] issue I have,” Mr.
Vioncek said. “Back in the day in liquor
stores, the initial regulations for liquor was
that you had to have wrap. Then, as time
progressed, there was a realization that the
wrap on the exterior of the windows ac-
tually creates a security issue for the peo-
ple inside because there is no visible access
from the street into the shop. That allows
the bad guys to feel more comfortable go-
ing into these shops and holding them up.”
After the Cannamart robbery, manager
Chris Wilson partly removed the store’s
window coverings. The boyfriend of one
employee was standing directly outside
the store at the time of the Dec. 12 incident,
Mr. Wilson told the Edmonton Journal last
month, oblivious to the violent threats
employees were facing inside.
Thieves are also enticed to legal pot
shops because of customers’ heavy use of
cash. In May, the provincial agency in New
Brunswick responsible for overseeing both
alcohol and cannabis retail published
sales data showing 34 per cent of cannabis
purchases were made using cash, com-
pared with just 26 per cent of alcohol pur-
chases.
Shortly after recreational cannabis was
first legalized in October, 2018, federal Pri-
vacy Commissioner Daniel Therrien re-
leased a formal statement encouraging
Canadians to use cash for their cannabis
purchases in order to avoid having their
personal data collected.
Perhaps the greatest security risk creat-
ed by cannabis legalization, Mr. Hyde ar-
gues, is the sheer number of times legal
cannabis products are moved from place
to place before reaching the end consum-
er.
“There is more cannabis moving on the
roads in Canada than ever before and I
think the public would be surprised to
know just how much cannabis is constant-
ly moving around,” he said. “Think about
all the transfers from LP [licensed pro-
ducer] to LP, from cultivator to irradiation
facility, processor to packager to wholesal-
er or distributor and then finally to retailer.
There is more and more cannabis moving
around and that exposure increases the
CANNABIS PROFESSIONAL
This story first appeared in Cannabis
Professional, the authoritative news service
tailored specifically for professionals in the
rapidly evolving cannabis industry. To
subscribe, visit tgam.ca/canpro
risk of crime.”
rected HBC and the Baker group
to provide more information be-
fore holding a shareholder vote.
That vote is now expected to be
held in February. For the Baker
group to succeed, it will need to
obtain at least 75 per cent of the
votes cast by all shareholders and
a simple majority of votes cast by
minority shareholders, including
Catalyst.
Catalyst said it has the right to
withdraw its support under cer-
tain circumstances, including if
HBC does not file its amended
management information circu-
lar and mail it to shareholders by
Feb. 14.
David Leith, chairman of a spe-
cial committee of HBC’s board of
directors formed to review Mr.
Baker’s initial privatization bid
and other offers, said he “would
like to commend Catalyst on their
constructive approach to getting
a transaction agreed, which we
believe is in the best interests of
the company and minority share-
holders.”
Mark Petrie, a CIBC World Mar-
kets analyst, wrote in a note Mon-
day that the amended deal and
agreement with Catalyst “re-
moves the final roadblock to the
go-private transaction.”
CIBC says no competing bids
are forthcoming and raised its
price target for the company’s
shares from $10.25 to $11.
A potential roadblock remains
in a lawsuit filed at the Ontario Su-
perior Court in early December.
New York-based investment
manager Ortelius Advisors LP and
Pangaea Ventures LP, an HBC sha-
reholder, filed the suit against
HBC, Mr. Baker and Rupert Acqui-
sition LLC, which represents the
continuing shareholders.
The suit attempts to block the
privatization bid.
It alleges the offer is under-
priced and that “the defendants
have deliberately engaged in ac-
tions that have prevented a fair
expression of HBC’s market price
through the deliberate timing of
disclosures, misleading informa-
tion and a structured bid that per-
mits no competition,” according
to the document. None of the
claims has been proved in court.
THE CANADIAN PRESS
HUDSON’S BAY (HBC)
CLOSE: $10.84, UP 96¢

Scotiabank announces gain to first-quarter financial results

JAMES BRADSHAW
BANKING REPORTER
Bank of Nova Scotia will record
an after-tax gain of $175-million
in its fiscal first-quarter results,
driven by the sale of a large part
of its stake in a bank in Thailand,
but offset by a series of one-time
charges.
Scotiabank pre-announced
four items that will affect its re-
sults for the quarter that ends
Jan. 31, which will be reported on
Feb. 25. The bank made the dis-
closure one day before chief ex-
ecutive officer Brian Porter is
scheduled to discuss the bank’s
outlook at a conference on Tues-
day hosted by Royal Bank of Can-
ada.
Scotiabank expects an addi-
tional $410-million in after-tax
revenue for the period from a
deal to reduce its 49-per-cent
stake in Thanachart Bank Public
Company Ltd., a Thailand-based
lender, which was announced
last August. But some of that
gain will be offset by charges as
Scotiabank makes more conser-
vative allowances for credit loss-
es, reforms the way it values cer-
tain derivatives and writes down
the value of a piece of software
that will soon be discontinued.
Most significantly, the bank is
adding to the forecasts it uses to
calculate its allowance for credit
losses, which is funds set aside to
cover potential losses on loans
that are still being paid back but
could become impaired. Until
now, Scotiabank had used three
scenarios that incorporate fore-
casts for economic indicators
such as Canada’s gross domestic
product growth, unemployment
rate and housing price index: a
base case that the bank considers
the most likely outcome, as well
as an optimistic and pessimistic
scenario. Each is weighted based
on how likely the bank believes it
is to occur.
Scotiabank will add another,
more pessimistic scenario, effec-
tive in the fiscal first quarter. And
the bank estimates that by add-
ing this fourth scenario, its total
allowance for credit losses of $5.1-
billion will rise by about $150-
million, or $110-million after tax.
Over all, the bank’s existing
pessimistic scenario has the
most optimistic assumptions of
any of Canada’s six biggest banks
for the coming 12 months, ac-
cording to a research report pub-
lished last week by Darko Mihel-
ic, an analyst at RBC Dominion
Securities Inc. The difference in
the allowance for credit losses
between Scotiabank’s base case
and its current pessimistic scena-
rio is only $181-million, or 5.1 per
cent, compared with a difference
of $1.48-billion, or 111.3 per cent,
at Bank of Montreal.
Scotiabank will also record a
charge of $120-million, or $90-
million after tax, primarily relat-
ed to uncollateralized over-the-
counter derivatives. And it will
book a $50-million charge, or
about $35-million after tax, on a
software asset that depends on
third-party software that is being
discontinued this year.