Editor’s note: This story was first available to Cannabis Professional subscribers. Sign up for a 14-day free trial here.
A warning sign of fresh trouble for Wayland Group Corp. came to light in late April.
Once one of Canada’s most promising cannabis companies, Wayland announced on April 23 that it likely wouldn’t file its 2018 financial statements on time. A week later, it confirmed the delay, prompting the Ontario Securities Commission (OSC) to place a cease trade order on its shares.
For months, the company was quiet. But in the dying minutes of Friday, Aug. 2, as most of the country was settling in to a midsummer long weekend, Wayland sent out an unexpected news release.
Its chief executive had resigned, its auditor had quit – and there still weren’t any financial statements.
Instead, Wayland announced a deal to sell its Canadian assets to a cryptocurrency company and revealed discussions to sell its remaining international business to ICC International Cannabis Corp., an early stage company built by junior mining financiers.
Altogether, the proposed deals and departures paint a landscape in which Wayland would effectively cease to exist. If the deals go through, the developments will mark an abrupt end for one of the first licensed commercial marijuana growers in Canada, a company that has faced operational problems, regulatory probes and criticisms of overly promotional activities.
Wayland plans to sell its Canadian assets, which include a production facility in Langton, Ont., to Cryptologic Corp. The buyer is a relatively small cryptocurrency miner that lost $74-million in fiscal 2018 after writing down two acquisitions. Until July 31, the company was known as Vogogo Inc., and at the time of its name change, management said in a news release that the “rebranding emphasizes the company’s focus on cryptocurrency mining.”
Two days later, Cryptologic offered to buy Wayland and to pivot to cannabis.
Many of Cryptologic’s backers come from the online gambling industry, where some helped build Amaya Inc. The name Cryptologic even appears to have been recycled: Cryptologic Inc. was an online gambling company acquired by Amaya in 2012.
Three Cryptologic shareholders – Yoel Altman, John Vettese and Craig Bridgman – were also shareholders of a private company called NanoLeaf Technologies Inc. that was acquired by Wayland in 2017 for $38.5-million in stock.
Cryptologic’s takeover structure is complicated. The company has offered to pay for Wayland’s Canadian assets by issuing 57.5 million of its shares at $4 apiece. However, Cryptologic shares closed at $1.99 on the Canadian Securities Exchange on Friday, meaning the company is offering a theoretical value for its shares.
It is the same tactic that Green Growth Brands Ltd. used in its recent unsuccessful takeover takeover bid for Aphria Inc. In December, Green Growth proposed to acquire Aphria “based on a valuation of $7 a share" of Green Growth, yet at the time the offer was announced the buyer’s shares were worth $4.98 each.
There is another parallel between the Green Growth and Cryptologic offers: Mr. Altman and Mr. Bridgman have ties to both companies. Mr. Altman has been a principal of Green Growth, and Mr. Bridgman has been a shareholder in the company, according to regulatory filings.
In an e-mail, Cryptologic CEO John FitzGerald said the offer price took into account that Cryptologic committed to providing Wayland with a bridge loan and to having cash available to fund the merged company’s growth – implying that these developments will boost Cryptologic’s value, and therefore its share price, in the long run.
He also said that, if the deal is completed, he will step down as CEO and the company will be run by current chief financial officer Jordan Greenberg, who cut his teeth in the cannabis space with Nuuvera Inc., a development-stage company that was acquired by Aphria only three months after going public.
As for the shareholders with ties to both the company that Wayland acquired in 2017 and to Cryptologic, Mr. Vettese, who is a corporate lawyer at Cassels Brock & Blackwell LLP, wrote in an e-mail that he “had no involvement whatsoever” in the proposed Cryptologic/Wayland transaction. “I first became aware of the proposed transaction after it was publicly announced,” he wrote.
Mr. Altman and Mr. Bridgman did not return multiple requests for comment.
If completed, Wayland’s other proposed deal, to sell the rest of its international assets to ICC, would see the company sell its majority stake in a business whose prized asset is one of only three companies licensed to grow medical marijuana in Germany.
Wayland already sold ICC a 49.9-per-cent stake in its international portfolio in an all-share deal that valued the stake in the portfolio at US$129-million when it was announced in January. Today, the shares Wayland received in return are worth US$19.5-million, after an 87-per-cent drop in ICC’s share price.
Canadian-run hedge fund MMCap International Inc. was the largest shareholder of both Wayland and ICC in early 2019, according to regulatory filings. Its current position in both firms is unknown.
Both the ICC and Cryptologic deals are being negotiated against a backdrop of turmoil at Wayland.
On Aug. 2, Wayland disclosed that MNP LLP had resigned as its auditor, adding that MNP said “there is an unresolved issue … relating to the conduct of the company’s former CEO in respect of the audit of the company’s 2018 annual financial statements."
MNP did not elaborate on the matter, and the audit firm declined to comment for this story.
Asked about the unresolved issue, former CEO Ben Ward declined to comment, but in an interview he said he expects the audit to be completed in due course. He added that he has effectively been out of the company since June.
Wayland’s new CEO, Matthew McLeod, declined to comment for this story.
The development comes after a series of blows in 2017 and early 2018 that changed Wayland’s trajectory.
Licensed in 2014, the company, then known as Maricann Group Inc., was one of the first to receive approval from Health Canada to grow cannabis as part of the federal government’s commercial medical-marijuana system.
Yet in March, 2017, a windstorm hit the company’s Ontario production facility, destroying crops in two of its five greenhouses. At the time, Wayland was preparing to go public on the Canadian Securities Exchange, and it began trading in April, 2017, but the company did not disclose the damage done by the storm until months later, in September.
A few months later, in February, 2018, the company came under scrutiny from the OSC for failing to disclose to investors that Mr. Ward was the subject of an OSC investigation for his actions at a previous company.
The OSC also opened an investigation that month into two directors of the company – former chairman Julian Neil Tabatznik and Raymond Stone – who sold about $8-million worth of shares days before the company announced a $70-million financing in late January, 2018.
Both Mr. Tabatznik and Mr. Stone resigned from the board, and in early March, 2018, a syndicate of investment banks, led by Eight Capital and Canaccord Genuity, cancelled the financing altogether.
An OSC investigation into the two directors was closed in September, 2018, with no further action taken. The OSC investigation into Mr. Ward is continuing.
After the failed share sale, Wayland’s stock price collapsed throughout 2018, and management spent heavily to promote the company. In 2018, Wayland paid investor-relations firms more than $4.5-million, half in cash, half in shares, to promote its stock. On three occasions that year the OTC Markets Group, which manages the over-the-counter trading platform where Wayland’s shares trade in the United States, ordered the company to issue clarifying statements about misleading promotional material.
Mr. Ward dismissed any suggestions of wrongdoing. “I’d frame it as industry norm, industry standard,” he said in the interview. “It’s a way to get your message out and gain liquidity for investors.”
Despite the efforts, the share price never recovered, dropping to $0.74 on the CSE before it was cease traded, down from a high of $4.25. Wayland’s stock continues to trade over-the-counter in the U.S., where it closed at US$0.20 on Friday.