As The Cannabis Industry Blossoms, So Do CEO Paychecks: M&A Deals Extremely Lucrative For Execs In High Places

The last several years will definitely be remembered as the most important for cannabis-related industries, as various milestones have been achieved. So far, around 18 states and Washington, DC, have legalized adult-use marijuana, and 37 have given the green light to medical cannabis programs. 

Some 12 countries in Europe have well-established medical marijuana programs, and about 16 allow specific cannabis products under certain conditions or have launched pilot MMJ programs.

Last year, the Supreme Court of the European Union ruled that CBD is not a narcotic, thus

enabling its free movement if it was legally produced within the EU.

These are just some of the biggest breakthroughs that occurred over the last couple of years. With more and more universities offering cannabis-related studies and new states and countries joining the legalization or decriminalization trend, to say the industry has a bright future is an understatement. 

What’s more, cannabis in its many forms managed to withstand myriad global pandemic

challenges, having been designated as an essential service across many states. While other industries dived, cannabis thrived.

The industry has also undergone numerous mergers and acquisitions this and last year, with the biggest one being Tilray, Inc.'s TLRY merger with Aphria, Inc. While these deals came as a natural response to the increased demands of the ever-booming market, they also brought “hidden” benefits to those in high places. 

Cannabis Merger Deals Equal Lucrative Bonuses For Executives 

What many people are unaware of is that these deals tend to be extremely lucrative for those in executive positions in these companies. There are several ways that CEOs of acquired cannabis enterprises can obtain millions of dollars through these deals, reports Marijuana Business Daily.

One example tops them all, according to the outlet. That is Steve White, CEO of Arizona-based Harvest Health HRVSF, which is about to complete a $2.1 billion merger with Trulieve Cannabis Corp. TCNNF.

As it turns out, White has “change of control” provisions that could yield a paycheck in excess of $10 million. 

An opposing example is John Tripton, CEO of Florida-headquartered AltMed, which was acquired by Illinois-based Verano Holdings Corp. (OTCQX: VRNOF) in February. Tripton did not

get a lofty change-of-control provision. 

Nevertheless, Tripton’s deal was not without financial rewards - he received a handsome $1 million signing bonus and took up to $3 million per quarter in cash and stock bonuses, based on the financial performance of AltMed’s acquired businesses in Florida and California, regulatory filings revealed.

Acquisition Premium As The Best Bonus 

 “Usually the big payoff from these (merger and acquisition) deals is the acquisition premium,” explained Fred Whittlesey, a marijuana compensation expert and founder of Seattle-based Compensation Venture Group.

When Trulieve announced the purchase of Harvest in May, the merger conversion rate accounted for a 34% premium for Harvest stockholders. In the meantime, the deal premium narrowed to 3%, representing Trulieve’s share price dive and Harvest’s stock price gain. That is to say, Trulieve’s shares lost 24% since its highest trading day in May and closed Tuesday's market session with $32.93 per share, while over the same period, Harvest’s stock jumped 35.25%, with a closing price of $3.76 per share on August 10. 

“This (the narrow premium) basically means the market is getting pretty confident that the deal will go through,” said Mike Regan, founder of Denver-based MJResearchCo.com and a contributor to Marijuana Business Daily.

Regan further noted that White beneficially owns $91.7 million in Harvest stock, which means he controls that holding, while some of it could be owned by other investors or members of his family, writes Marijuana Business Daily.

Using the proposed conversion rate, those shares would be worth $94.6 million in Trulieve stock, if the merger had closed on August 6. 

Exact payout figures of CEOs are not usually revealed to investors unless disclosed in future regulatory filings upon merger. When it comes to White, Trulieve is not be obliged to reveal his final paycheck unless he remains with the company as one of its executives.

What’s interesting is that White controls 52% of Harvest’s vote via super-voting shares, as per a proxy statement filed with the U.S. Securities and Exchange Commission before the August 11 shareholder vote on the Trulieve merger.

See also: How to Buy Sundial Growers (SNDL) Stock

This means White alone has enough power to approve the merger. 

Trulieve-Harvest Merger - What’s In It For White? 

With Harvest having a $100 million convertible note due in May 2022, refinancing the note could require extra equity that could potentially dilute White’s voting share to less than 50%, Regan explained.

 “Put yourself in Steve White’s shoes,” Regan told Marijuana Business Daily.“You can risk losing control of the company, or you get frontloaded (change-of-control) benefits and swap Harvest shares for Trulieve shares at a premium that are far more liquid to sell.”

In the end, White would hold a part of a bigger company “where the combination is more valuable together than apart.”

The precise amount of the change-of-control payout will depend on how White’s salary is calculated. Marijuana Business Daily came up with a range of what White could possibly earn for a two-year bonus using a $1.13 million base salary (calculated on previous salary information publicly available), which is between $2.25 million to $11.25 million. 

One employment contract from 2018 enabled White to get an astonishing 50% increase in base salary from $500,000 every year.

“I’ve never seen a 50% annual salary increase not tied to performance,” Regan told Marijuana Business Daily.

With Trulieve stock being “six times more liquid” than Harvest’s stock before the merger, its shares would be easier to sell. Whittlesey also added that based on the agreement, it seems that White’s option would be traded from Trulieve’s options.

It is safe to assume that Trulieve would ensure the merger is “neutral economically to White,” which means that if White has $1 million in value on options, Trulieve would provide that he receives $1 million in Trulieve’s options.

Anybody wonder what the chances are that the deal won’t go through?

Photo: Courtesy of Visual Stories || Micheile on Unsplash