Ripe for the picking: Cannabis sector governance needs to catch up to share price


Even with recent market volatility, share prices of cannabis companies are still well above where they were half a year ago. With new shareholders, increased scrutiny of investors, and a growing list of possible buyers, the decisions made by cannabis company directors in the next few months could decide their fate. Will their company go up in smoke?

With rising share prices and a rosy outlook, the temptation for directors to be complacent to outside threats — from hostile bidders or activist shareholders — is strong.

In meteoric fashion, some of the now-large cannabis companies have graduated from the TSXV to the TSX, and in some cases the S&P/TSX Composite Index. While this has created huge returns for seed investors, it has also dramatically changed shareholder bases: large cannabis companies have started to see a turnover from retail to institutional investors.

While institutional investors, and the capital they bring, has been welcomed by the sector, it’s also created a new a reality for cannabis boards. Unlike retail shareholders, institutional investors place more scrutiny on board governance. And, importantly, proxy advisory firms Institutional Shareholder Services and Glass Lewis — firms tasked with providing vote recommendations on proxy items — will now have a say in shaping their future.

This new reality can seem daunting for rapidly growing companies and the entrepreneurs who started them.