A Hard Look at iAnthus’ Investor Relations Disaster

Last week, investors of the cannabis sector were privy to a prime example of why investor relations is so crucial for public companies. iAnthus Capital Holdings (CSE: IAN) learned the hard way the price that can be paid if you fail to live up to expectations. For a company that frequently prides itself on its accountability, the firm tried to scoop significant option repricing under the rug in the hopes that no one would catch on.

And the attempt worked, at least for a short while. While the options cancellation and repricing occurred on June 6, it wasn’t until a savvy Twitter user going by the handle “@xb0y” caught the move on June 11 that things started to turn ugly for the multi state operator.

After the revelation, the equity fell from $5.10 on Tuesday, to $4.20 by Friday, with a new 52 week low being set at $4.10.

iAnthus, feeling it was appropriate to finally address the situation officially, put out a news release Friday stating that it was done in an effort to keep key members of management.

“Recently we issued options for existing team members and initial grants for new hires, impacting over 160 team members and strategic consultants to the Company. Shortly after the issuance of these options, the market and particularly the stocks of the U.S. cannabis multistate operators, including iAnthus, declined significantly for general market and sector reasons that we believe were not related to and did not properly reflect the performance of the Company’s new hires and existing team. We made the decision to issue new stock options, and cancel certain previously issued stock options, to ensure our team stays focused on growing the company and aligned with our shareholders through a long-term incentive program.”

Hadley Ford, CEO of iAnthus Capital Holdings

There are several major issues with this response, which was handled poorly at best. The reactive nature of it first and foremost suggests that they intended for this to be swept under the rug, despite the material impact and the message it sends to shareholders. Several other issues persist however, including:

  • The options are for a period of ten years – indicating that the executive management team is bearish on the long term value of the equity
  • The repricing was from $7.08 per option to that of $5.25, indicating that a 24% reduction in cash collection from option exercise will occur, which is not shareholder friendly
  • The company indicated within the release that the repricing was done to retain new hires who saw their options go way out of the money in a short period of time. At least two new team members in senior roles listed in the release joined AFTER the initial option grant as per LinkedIn, thus the company used them to bolster examples when it was inappropriate to do so
  • Only 27% of the reissued options went to regular employees of iAnthus, with the remainder going to consultants and members of the executive team
  • 17.8% of the options went to Hadley Ford himself. He stands to profit an additional $2.25 million from the option repricing, before the additional options are taken into consideration

In addition to the news release put out on Friday by iAnthus, the firms investor relations department quickly put into place a standard email response when shareholders inquired about the move the company made to voice their concerns.

Uploaded to Twitter by user @Weedstreet420

Notably, the firms IR department identifies that the options were mispriced due to “aggressive and, in our view, unjustified movements in the market unrelated to operational performance,”. This is interesting, as iAnthus took advantage of this aggressive movement in their share price to conduct a raise at the price of $6.83, filing for price protection with the CSE only two days after issuing the initial options at $7.08 which were later cancelled.

iAnthus’ capital raise, which filed for price protection two days after the initial options were issued.

iAnthus raised US$25 million at a price of $6.83, thanks in part to the aggressive price movement that the sector is subject to. A week earlier the equity had closed at $6.04 per share. Evidently, only management is allowed to benefit from repricing when the equity sees negative price action.

For a company that prides itself on being shareholder friendly, iAnthus is the prime example of why information such as this should be press released up front, rather than in a reactive manner.

iAnthus has seen its value cut down by $137 million as a result of the blunder, in addition to broken shareholder confidence and an overall bad taste left in investor mouths. The worst impact, however, may come in the form of other sector players now seeing the move as a green light to reprice their own options.

Information for this briefing was found via Sedar, and iAnthus Capital Holdings. 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. The author holds no licenses.