Harry DeMott, the CEO of beleaguered cannabis firm Australis Capital (AUSA) (CSE:AUSA,OTCQB:AUSAF), has told shareholders Terry Booth is vying for his job.
In the lead-up to a crucial shareholder vote to determine the future of the company, AUSA management hosted a conference call last Thursday (October 29) to continue making its case to undecided investors.
“I think investors who are thinking about going with Terry are being asked to trust him, and I think trust has been sort of a four letter word with Terry,” DeMott said during the call.
Booth, the founder and former CEO of Aurora Cannabis (NYSE:ACB,TSX:ACB), is at the forefront of the Concerned Shareholders of Australis Capital, a group seeking material changes at AUSA. DeMott suggested Booth will be appointed to AUSA’s board of directors if his dissident group wins the shareholder vote.
The group has countered AUSA’s board nominees with its own set of candidates; the vote will happen as part of the company’s upcoming annual general and special meeting on November 17.
Both AUSA and the Concerned Shareholders have sent out documents and materials on their respective board nominees. Now it’s an election-type march with back-and-forths between the groups heading into the vote.
AUSA was originally spun out of Aurora as a separate company looking to invest in the US cannabis market. Aurora still holds 22 million AUSA warrants, and they have an exercisable deadline of September 19, 2028.
Aurora can’t exercise these warrants until cannabis is federally legal in the US, given its position as a Canadian producer with senior exchange listings in both countries.
When detailing the state of affairs for AUSA, DeMott indicated the company counts three key cannabis assets: its kiosk business venture, its current share ownership in Body and Mind (CSE:BAMM,OTCQB:BMMJ), which has exposure to Nevada and California, and a recently acquired cannabis brand portfolio.
“That’s number one, clean up the assets we have. We have good cannabis assets, there’s no reason we shouldn’t maximize them,” he said.
The executive spent some time sharing his evaluation of the fractured US market, which the company still plans to focus on. “It’s very much so a wild west show in the US,” he said.
DeMott said companies operating in the US need to be careful before deploying capital for hard assets such as growing facilities or dispensaries given the regulation changes seen at the state and even city level.
“We are very wary of regulations and jurisdictions that we’re in to try and understand where we’re going,” the executive told investors.
SPAC intentions and DeMott’s background take center stage
In a new strategy presentation made available to investors, AUSA outlines its intentions to pursue the increasingly popular special-purpose acquisition company (SPAC) model. According to the document, the company plans to “raise a small SPAC” in the range of C$75 million to C$100 million.
However, during last Thursday’s call, DeMott said that move is not confirmed, instead noting that AUSA’s management team plans to explore the feasibility of launching a SPAC.
“If we did it, we would use some money from Australis to become part of the sponsor, and therefore Australis would get part of the sponsor shares, therefore shareholders would benefit,” he said.
SPACs raise capital by presenting an acquisition strategy to investors with a proposed timeline attached. Once the qualifying transaction is completed, the investors get shares in return; if the transaction is not completed on time, investors get their money back.
DeMott was also asked during the call to expand on his knowledge of the cannabis industry — a point of contention as the Concerned Shareholders have routinely called into question his experience and management style.
DeMott’s closest connection to the cannabis business comes from acting as an early investor with Columbia Care, a multi-state operator in the US that started its journey in the capital market as a SPAC. The executive said he still holds about 16 percent ownership of Columbia Care’s license in Washington, DC, amongst shares in Columbia Care. “I’ve always been entrepreneurial in nature,” DeMott said to listeners.
In an attempt to level with investors about his true intentions with the company, the leading executive said his pay is about half of what the previous CEO Scott Dowty was earning. DeMott started the job of CEO on October 5, but has been involved with AUSA since he was appointed as a board member in April 2019.
In addition to his salary, DeMott said he asked “for as many options as the board was willing to give me” as part of his compensation. He didn’t disclose how many that amounts to in the call.
According to Canadian Insider transaction files, DeMott bought an additional 30,000 shares of the company at a price of C$0.11 per unit at the start of October. The filing indicates he held a closing balance of 130,000 shares at the time.
DeMott used his salary as to demonstrate that his goal is to raise AUSA’s share price. “We want to bet on ourselves and our ability to get things done,” he said.
In the week since the call with investors took place, shares of AUSA have dropped in value by nearly 4 percent. As of 1:45 p.m. EST this Thursday (November 5), the company was trading at C$0.12 per share.
While the official AUSA shareholder meeting will be on November 17, investors have a deadline to vote before November 13 at 11:30 a.m. MT.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
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