A former chair of Canadian cannabis producer WeedMD illegally tipped off a longtime acquaintance about an unannounced greenhouse deal, which led to insider trading, Ontario’s securities regulator has alleged.
Michael Kraft, then-chair of WeedMD, now called Entourage Health, “tipped his acquaintance Michael Brian Stein about an upcoming expansion by the company before it was generally disclosed,” the London Free Press reported, citing a statement of allegations by the Ontario Securities Commission (OSC).
According to the allegations, “armed with knowledge of material non-public information, Stein purchased shares of WeedMD on November 21, 2017, the day before the announcement. Following the announcement, Stein sold all of the WeedMD shares he had purchased for a return of nearly 43%.”
The allegations haven’t been tested before an OSC hearing.
Kraft didn’t respond to a request for comment by the newspaper.
Stein couldn’t immediately be reached by MJBizDaily.
A hearing is scheduled for March 16.
Penalties sought by the OSC include:
- Barring Kraft and Stein from trading in any securities or derivatives permanently, or for a yet-to-be established period.
- Barring the two from acting as director or officer of any issuer permanently, or for a yet-to-be established period.
- The application of an administrative penalty of not more than 1 million Canadian dollars ($750,000) for each failure to comply with Ontario securities law.
A spokesperson for Entourage Health told MJBizDaily that, “as this is an OSC investigation into the personal conduct of external individuals not associated with Entourage or any of its partners or associates, we have not been engaged in the matter. Entourage will however cooperate fully if asked.”
The spokesperson said the company was only recently made aware of the investigations.
“Entourage operates in compliance with all applicable laws, and fully expects all staff and insiders to conduct themselves with integrity, professionalism, and discretion in accordance with our company policies,” the spokesperson said via email.
On Nov. 22, 2017, WeedMD announced that it had entered into a definitive lease and purchase option for the 98-acre property and a 610,000-square-foot greenhouse in Strathroy, Ontario.
The greenhouse deal came in the frothy days of the marijuana bubble, when share prices of publicly traded cannabis producers would often skyrocket for no reason other than greenhouse expansion announcements.
Canada legalized recreational cannabis in October 2018.
Connected to the same greenhouse deal in 2017, but unrelated to the Kraft situation, two people recently admitted to engaging in insider trading and tipping while a third is contesting allegations, the London Free Press reported in mid-January.
A WeedMD worker, Tyler Carr, admitted to tipping off mutual fund dealer Trevor Rosborough about the company’s undisclosed plan involving the greenhouse in Strathroy in 2017.
The OSC alleges that Rosborough told Dmitri Graham about the pending deal.
Per a settlement with the OSC, Rosborough’s fines totaled nearly CA$40,000. He also is barred from trading securities or derivatives for eight years and can’t be a director or officer of a company over that period of time.
The newspaper reported that Carr has admitted to engaging in insider trading and tipping, citing an agreed statement of facts.
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An OSC hearing to determine his penalties will be held at a later date.
An OSC panel is yet to deliver its decision on the Graham allegations, the London Free Press reported.
Shares of Entourage Health are traded on the TSX Venture Exchange as ENTG.