Part of cannabis and investing
Executives and board members of struggling cannabis company Tilt Holdings Inc. earned another US$50-million in the second quarter, bringing their total compensation in 2019 to US$110-million.
The pay packages, largely awarded through stock options, come after Tilt recorded a US$496-million impairment charge in May stemming from three recent acquisitions.
Tilt’s share price has also lost 81 per cent of its value in 2019. The company’s stock closed at 72¢ Tuesday on the Canadian Securities Exchange, despite raising US$119-million in a financing last November that was priced at $5.25 a share.
Massachusetts-based Tilt is one of many companies marketed to Canadian investors as a means of capitalizing on the potential of cannabis use being legalized in the United States. The company was created in late 2018 through the reverse takeover of Canada’s Sante Veritas Holdings Inc., and Toronto-based Canaccord Genuity has served as its lead investment bank.
On a conference call last week, Tilt’s chief financial officer David Caloia attributed the compensation expense to “legacy agreements” from its four-way merger in late 2018. As part of the reverse takeover, Tilt also acquired three other U.S. businesses – Baker Technologies LLC, Briteside Holdings LLC and Sea Hunter Therapeutics LLC – and merged them to create a company that offers cannabis production, retail software for dispensaries and consulting services.
The vast majority of the compensation went to those Tilt describes as “key management personnel,” who are members of the company’s executive management team and the board of directors. At the moment, Tilt has eight key personnel.
In a company press release last week, Tilt said the latest compensation expense “did not reflect new grants made during the current period. This elevated level of non-cash stock-based compensation reflected the initial vesting schedule developed at the time of grant.”
The CFO also said the company’s board “is currently finalizing a forfeiture of the legacy stock options,” but did not elaborate on any potential plans.
Tilt did not respond to questions for this story. Tilt’s auditor, MNP LLP, declined to comment, citing client confidentiality.
Tilt’s shares have fallen 74 per cent since the company announced its writedown worth a half-billion U.S. dollars in early May. At the time, very little explanation for the impairment charges was provided. In an interview, former chief executive Alex Coleman blamed them on the company’s auditor.
A month later, Tilt disclosed that it paid senior executives and board members US$60-million in the first quarter, mostly in stock options. In an e-mailed statement to The Globe and Mail, Tilt said the compensation stemmed from stock options awarded when the company was formed. “There were incremental options awarded to founders within each of the various businesses, as well as additional options issued to new executives who were brought on board,” the company said.
In July, Tilt announced that it had amended two major financial filings under orders from British Columbia’s securities watchdog, and in doing so the company disclosed more about its writedown and also removed language the regulator deemed promotional.
In the updated filings, Tilt attributed the writedown to overpaying for the acquired companies. Tilt also said some of the variables involved in calculating the purchase prices were “descriptive, subjective or difficult to measure.”
The US$110-million worth of stock options awarded to executives over the last two quarters stemmed from the same deals. However, the options can only be exercised at $5.25 a share, meaning they have little value at the moment because Tilt’s stock is trading far below this level.