07 July 2021
In the article authored by Jeff Smith, reflecting extensive research of securities filings in the US and Canada cited my comments:
Fred Whittlesey, a marijuana compensation expert and founder of the Seattle-based Compensation Venture Group, noted that he could write a “lengthy piece on all of the errors and incorrect disclosures in cannabis companies … there seems to be an industry-wide disregard for accuracy in securities filings.”
In addition, several MSOs disclosed equity awards in separate sections from their executive compensation summary table, but they did not include contingent, or estimated, values to those awards, as is customary in such reporting.
Whittlesey also was critical of that approach.
“Investors want to see everything on one page, all the numbers,” Whittlesey said. “Board members want to see everything on one page, all the numbers.”
“If a company is not willing to provide full transparency on executive pay to all stakeholders, we need to question why that is.”
Whittlesey estimated the median value of the 1.5 million options at $2.62 a share, for a total of $3.93 million, employing the widely used Black-Scholes option pricing model based on pricing data in Cresco’s disclosure.
22 May 2021
Board of Director Pay at Village Farms International: Huh?
Disclosure: I was a shareholder of Village Farms International as of the record date of 23 April 2021 but have since divested my holdings.
After reading their Notice and Proxy Statement dated 06 May 2021, I think I made a good decision. I made an 80% gain in 16 months, and VFF is down about 25% since I sold. This does not constitute investment advice.
I avidly read the securities disclosures of companies in which I am invested, am considering investing, or just studying the executive pay. I believe that I have some models that successfully predict investment outcomes based on company compensation practices for their executives and their boards of directors.
When I look at VFF’s disclosure of Board compensation, I had to spend a lot of time, not time well-spent, understanding their Board pay.
Key points – Directors received in 2021:
- Cash retainers – typical
- No additional meetings or conference fees – increasingly the norm
- Stock options – rare for Boards, and rare for executives in most sectors, for many reasons – a topic for another blog
- Share-based awards – the norm for directors, typically time-vested and rarely performance-vested.
The reason it took so long to understand how much VFF Directors are paid is that the numbers don’t add up. Literally, the numbers don’t add up. The table on page 34 has four columns: Fees Earned, Share-Based Awards, Option-Based Awards, and Total. One would think that the first three columns would add up to the “Total” but only the first and third columns are added for the total.
Fortunately, the two equity column headers are footnoted for clarity. Unfortunately, they’re not accurate.
The footnote for the Share-Based Awards column is (3). Footnote 3 explains the valuation method for stock options. Oops.
The footnote for the Option-Based Awards column is (4). Footnote 4 explains that Ms. Cook retired from the Board in June 2020. Oops.
Now the arithmetic – fees earned and options are added to the total, which is in the low to mid $80s. Likely those are the numbers the media will report. Excluded from the total is the $271,733 in Share-Based Awards granted to two Directors. Oops. Those two individuals have been Directors of the Company since 2006, these are not “new hire grants” and even if they were, they’re part of their total compensation.
One of them is the Chair of the Compensation Committee of the Board of Directors. Just sayin’.
21 May 2021
Cancel Culture Comes to Cannabis
From The Week, May 7, 2021
“Only in America”
Quote: Progressive members of the cannabis industry want to retire the term “marijuana”on the grounds that it’s a racist slur. The word originates in Mexican Spanish, and Oregon cannabis purveyor Daniel Hayden says the term was popularized by “racist politicians” to condemn cannabis use as a Latino “vice.” Hayden also opposes the use of “weed” and “pot,” and says “any term applied to cannabis other than ‘cannabis’ is negligent and abusive behavior. Endquote.
I don’t know if it’s true that “progressive members of the cannabis industry” feel this way. It sounds like one guy does and we don’t know if he’s progressive or not.
Jimi Hendrix said it best:
“As you all know
You just can’t believe everything
You see and hear, can you?
Now, if you’ll excuse me
I must be on my way.”
My point: It’s executive compensation media season. Read and interpret carefully and skeptically.
Before you read my “10 Common Compensation Mistakes” article, read “6 Cannabis Business Lessons We Learned Too Late”
26 January 2020
“What are companies like us doing?” – Revisiting compensation peer groups
From the NCIA Blog
“As we research executive compensation in the cannabis sector, we find a blend of compensation practices from these diverse industries, defying the notion that there is a “norm” or a “median” in the cannabis sector.”
23 January 2020
Are your cannabis company’s employee compensation expenses tax deductible? You may have to ask the US Supreme Court or US Tax Court. If you are trafficking in controlled substances, that is.
Cannabis Compensation Consultants Observation:
Cases in California and Colorado have ascended to the federal appeals level.
As explained by Mr. Nick Richards, a cannabis tax attorney with Greenspoon Marder, some cannabis companies have been assessed income taxes under Internal Revenue Code Section 280E that exceed the firm’s income and net worth.
Be sure to confirm that your compensation consultant or adviser understands Section 280E and the alternatives for optimizing tax-effectiveness of executive and employee compensation in cannabis companies.
No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.
22 January 2020
Does a terminating CFO get a severance package?
(Read the fine print)
Jan. 17, 2020 /CNW/ – Australis Capital Inc. (CSE: AUSA) (OTC: AUSAF) (“AUSA” or the “Company”) announced that
Mr. Michael Carlotti’s employment with the Company as Chief Financial Officer has been terminated effective January 16, 2020.
Cannabis Compensation Consultants Observation:
If Mr. Carlotti was terminated by Australis Capital without cause or he terminated for “Good Reason” he would receive:
“an amount equal to one and one half times the annual salary at the time of termination (which is equal to one year’s annual salary and the minimum target year-end bonus,
the Executive would be eligible to receive) and any vested stock awards or grants.”
But, if he was terminated “For Cause” or he resigned, then he gets…any money due to him as of the date of termination.
- Mr. Carlotti joined in 2018 with
– a base salary of US$240,000
– annual bonus ranging from US$120,000 to US$192,000
– 1,800,000 stock options (1.1% of the company) at a strike price of $0.20
– 450,000 RSUs (0.3% of the company) granted at a price of $1.59AUSA.CN closed January 16 at US$0.45.
So Mr. Carlotti may receive US$360,000 and the rights to vested stock options that would be 19cents in-the-money. It appears he would have been 1/3 vested in his 180,000 options so 60,000 x 19 cents = $15,600.
This highlights the importance of well-defined terms in an employment agreement: “For Cause” and “Good Reason” and “Without Cause” – and even “disability”.