Just before the Easter long weekend, it was announced that Abattis Bioceuticals Corp (CSE: ATT) was to be flagged by the OTC Markets. The justification for this, in short, is the evidence of stock promotion occurring. Although the release stated that promotion itself is not illegal in the US or Canada, it’s concern is that it may mislead investors. To help these naive investors, they have implemented a “megaphone” icon that will be displayed next to the symbol of the stock.
Although a total of thirteen Canadian companies were identified in the release, we selected Abattis as our first focus. Several of the companies listed we have covered in the past, and we thought it best to start with a fresh face after we get back in to the swing of things here. We intend to analyze a few of the other flagged companies at some point in the near future as well, and identify what concerns us as investors.
Abattis Bioceuticals: 3 Reasons We’re Wary
Cannanumus: Where’s the value for Abattis?
Although we found a handful of red flags for Abattis after we started our research, the most prominent was that of the acquisition of Cannanumus. Not only was this the announcement signalling the entrance to blockchain for the company, but also a signal to investors. Of late, there have been numerous cannabis companies that have entered the quickly crowding blockchain sector. All of which promise to deliver the same product. Concurrently, the vast majority of them also appear to have one thing in common – hype.
When we speak of hype however, we aren’t referring to the tech that is being acquired by the companies themselves. Often, the target acquisition is focused on blockchain only in name while having little if any experience with the tech itself. Based on what we could find on Cannanumus, this appears to be the case yet again.
On February 1, it was announced that Abattis would be acquiring Cannanumus and their claimed technology for the sum of $5,000,000 in cash, with additional milestone based payments amounting to up to $7 million. In exchange for the recently raised cash, Abattis would receive 49% of Cannanumus. That’s correct, not even a majority of the company. The following stipulations were attached to the acquisition:
(i) a definitive agreement being entered into with a company engaged in the cannabis economy for the use of the Coin as a medium of exchange,
(ii) the successful ICO of the Coin and
(iii) a second definitive agreement being entered into with a company engaged in the cannabis economy for the use of the Coin as a medium of exchange.
Upon these conditions being met, the final milestone payments will be issued to the shareholders of Cannanumus. As of the time of writing, two of the three conditions have been met, with the ICO being the only remaining stipulation.
So where’s the benefit to Abattis for this expensive acquisition? As of yet, this is yet to be seen. Arguably no value has yet been acquired by the organization. When we did a Deep Dive into the company though, we noticed some connections. Cannanumus itself was founded by Simran Gill, who from what we can tell, is a Principal at BridgeMark Financial. On the surface, this appears to be a non-issue.
However, BridgeMark Financial was founded in part by Anthony Jackson, the former CFO of Abattis Bioceuticals. Shortly after the acquisition of Cannanumus, Jackson resigned from the firm and was replaced with the current CFO David Whitney. Interestingly enough, Jackson also had a connection to the recent acquisition of Green Tree Therapeutics as well, wherein he was a shareholder of the company that formerly owned the rights to the firm. After Green Tree was acquired by this previous firm, that too is when Jackson made his exit.
It remains to be seen what exactly Abattis will be receiving in exchange for its seven million dollars. As it stands, it seems that the beneficiaries are former members of management rather than the current shareholders.
Canadian Artesian: Abattis’ failed due diligence
On March 13, 2018, shareholders of Abattis Bioceuticals were delivered a treat. The firm had signed a non-binding letter of intent to manufacture CBD infused mineral water with Canadian Artesian. Canadian Artesian, as they stated, is a B.C. based firm that bottles their own brand of premium water in addition to bottling the Clearly Canadian brand of water, a high-end branded water.
Except it doesn’t.
Two weeks later on March 26, Abattis had to stick its tail between its legs and walk back the claim. It appears that their due diligence had failed them, after stating this supposed fact in the title of their news release. The original release, along with the correction, has since been scrubbed from the firms website. There is no indication on the current status of the non-binding letter of intent.
Although this may be minor to some, it speaks of the quality of diligence that is being conducted by the firm on potential agreements. With this being so recent, it also brings in to question the quality of diligence conducted on other recent deals, of which there are a small handful. If the firm can’t manage to fact check a release issued to shareholders, are they fact checking the investments they are making?
Coincidentally the negative release was timed with a downturn in the market, making it unclear what effect it truly had on shareholder confidence. However from the time of the release to a week later, the equity fell from $0.28 to $0.15 as a potential sign of investor confidence.
Concerns with the CEO of Abattis
The final bone of contention that we currently have with Abattis Bioceuticals, is the chief executive officer Robert Abenante. Typically, we at The Deep Dive don’t address specific members of management that we have issues with. However, there are a number of red flags that have stuck out to us. Here’s the rundown.
- CEO of two listed public companies, Abattis Bioceuticals and Marifil Mines
- Pending lawsuit with a former company he headed
- Excessive “compensation for services”
- Unable to reign-in his management team on equity selling
First and foremost, the man currently helms two public companies. In addition to the demanding nature of Abattis Bioceuticals, he was recently named the CEO of Marifil Mines, a firm listed on the TSX Venture in November. Due to this appointment occurring during his tenure at Abattis, it brings in to question the focus he has on leading the company. With the many developments currently occurring for Abattis, does he truly have time to effectively manage both corporations?
Next on the list, is a lawsuit that was filed in September against Mr. Abenante by his former employer. The company, BLOX Inc, claims that while in the role of CEO for the firm, Abenante made several unsubstantiated transactions with company money. This includes paying off personal credit cards in addition to transferring funds to a private company in which he controls, Emerald Power Consulting Inc. The news report, published by Stockwatch Daily, goes on to state, “Among other things, he took no steps to develop the company’s business, did not devote sufficient time to his duties, acted in a manner of self-interest, did not maintain proper financial records and failed to assist the company after his resignation, the suit states.”
This in turn circles back to our initial concern related to helming two companies. It has been stated in the past that insufficient efforts were made by Abenante to further the interests of the firm. Will this occur again now that he has to split time amongst two lead roles?
Third on the list, is the excessive compensation for services in which Rob Abenante has claimed. On February 27, he was awarded 6,500,000 common shares of Abattis at a price of $0.263 as a form of compensation. In dollar terms, this equates to a paycheck of just over $1.7 million. Twelve days later, he was awarded a further 3,000,000 shares at $0.27, or $810,000 cash equivalent, as compensation for services performed. During this time, the $25 million acquisition of 90% of Gabriola Green Farms occurred. However, this is hardly with compensating the CEO of Abattis $1.7 million.
Lastly is the issue of Abenante’s management team itself, which he appears unable to reign in. In additional to the promotional material for which the firm has been flagged for, Abenante has failed to stop his management team from selling company shares. This would not be an issue during the normal course of operations.
It’s understood that insiders, including directors and members of management, may have a plethora of reasons to sell shares of the company. However, these sales should not occur while an open financing exists. Further to this, it is horrendous optics when these open market sales occur at price points below the financing price. Based on the reported insider transactions, this occurred five times during the course of a single raise.
Due diligence is critical when making any investment. This is especially true when the firm is a company listed on the junior markets, whether that be the OTC’s or the Canadian markets. The information addressed above was all publicly available, yet we see minimal discussion of it across social media. Rather, we tend to only see the “warm and fuzzy” aspects of a company via these mediums.
Truth be told, there is more red flags that exist for Abattis Bioceuticals that we did not address. Instead, we focused on the most recent issues so as to bring these issues to light sooner rather than later for investors. For instance, concerns have been made by several investors in relation to the GD Pharma deal which we simply did not have time to address due to space constraints. Bottom line, ensure proper diligence is occurring before you place money into any form of investment. It can mean the difference between a substantial gain or a loss.
Due diligence is important. Dive Deep.
Information for this analysis was found via Sedar, LinkedIn, Bloomberg, PressReader, Canadian Artesian, The CSE, Canadian Insider, and Abattis Bioceuticals. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.