Analysis of the cannabis industry poses various obstacles; many stemming from the lack of historical information and unbiased public data about companies or individuals operating in the space. Not to mention that the illicit cannabis black market – that has been alive and thriving for over 70 years – has done little reporting of actual numbers for the estimated $18 to $30 billion it is accused of acquiring over the course of any given business year. That being said, at the time of this writing, it is estimated that over 300 companies make up the publicly traded cannabis stock market with countless other private organizations scattered across the globe.
One of the largest issues for investors is that many of these publicly traded companies are listed on the “Pink Sheets” and trade in the OTC market, meaning there is a very limited number of reporting requirements. It is the discretion of management to decide what information is considered “material” and needs to be reported to the SEC, as well as, what will be posted in press releases, and so on.
That being said, an ugly story began unfolding last week, which in my opinion, could be the sort of wakeup call this industry needs. CannLabs, Inc. (OTCPink: CANL), provides a historic example of things that occur within the cannabis industry all the time. Companies have the ability to custom craft the story they are telling the public, including their shareholders, which more times than not means that shareholders are not getting the full picture
On October 2, 2015, CannLabs, Inc. filed an 8-K with the SEC reporting that on September 4, 2015 Genifer Murray had been terminated “For Cause”. The filing also includes a copy of a letter received by CannLabs, Inc. from Murray on September 17, 2015, resigning from the Board of Directors. In the letter, Murray makes seven statements as the main reasons behind the resignation and also outlines monies she believes is owed to her by the company.
The allegations in Murray’s letter are as follow:
1. The way you have conducted yourselves in terms of noncompliance and outrageous expenditures as Directors of the company has seriously damaged the company and its shareholders.
2. I have done all within my power to help the company move forward in a credible manner and have received resistance at every turn.
3. I have advised you on many occasions as to activities that I considered, at the very least, inappropriate and very detrimental to the company and you have not responded.
4. I have also asked you to step down and you did not respond.
5. You have said I was fired as an officer for cause and you have not notified me in writing as to “cause” even though requested to do so by my attorney.
6. I am of the opinion that the untrue statements you and other shareholders have made about me both verbally and in written form indicates a clear intention to defame my reputation and destroy my career.
7. In hindsight, I realized that this merger with Steve Soloman’s public company was a result of very bad advice and was detrimental to the work I have been devoted to for the past five and a half years.
Additionally, Murry had sent another letter, received by the Company on September 24, 2015 in response to a draft of the 8-K the company planned to file with the SEC. She points out that the statements were “…untrue and defamatory”.
On October 7, 2015 CannLabs, Inc. filed another 8-K disclosing the resignation of Chairman Mark Rogers, Director Kenneth Johnsen, both which occurred on August 5, 2015. The filing also discloses the election of Mark Mirken on as Chairman and Chief Executive Officer of the company. Mirken previously held the position of Vice-Chairman of the Board of Directors and was also working for the company as a consultant.
It gets even uglier. New Cannabis Ventures, reported that on August 24, 2015 the Colorado Marijuana Enforcement Division (MED) had charged CannLabs, Inc. (OTCPink: CANL) with 44 violations. The MED document states that the first inspection of the lab was in September 2014 and that they again inspected the lab in December 2014 and also again in February 2015. The document includes a total of 77 allegations of fact and 44 violations.
The chart above is taken from Yahoo Finance and shows CannLabs, Inc. trading history. The point marked on the graph is September 24, 2015–the date that CannLabs, Inc. received a letter from Murray disagreeing with the SEC 8-K filing. That was a Thursday. By the close of the market on Monday, September 28, 2015 the stock price had dropped to $0.3007 a new 52-week low.
What happened to the stock price if there was no press release, no news article, no public information or disclosure about the situation the company was currently under? Why did it take the company over a month to disclose that the executive management team had lost three key players? Why would the company choose to hide the fact that not only were they visited numerous times by the MED but were also found to have multiple violations? Rhetorical questions, obviously but the intent is to expose the one of the riskiest parts of investing in the cannabis sector – lack of unbiased and timely dissemination of data.