Harry DeMott, the CEO of beleaguered cannabis firm Australis Capital (AUSA) (CSE:AUSA,OTCQB:AUSAF) 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, the management of AUSA hosted a conference call last Thursday (October 29) to continue pleading to investors why they should vote in their favor.
“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. The executive suggested Booth would also be appointed to the board of directors if his group wins the shareholder vote.
Booth, the founder and former CEO of cannabis producer Aurora Cannabis (NYSE:ACB,TSX:ACB), is at the forefront of the Concerned Shareholders of Australis Capital, a group seeking material changes in the direction of AUSA.
This group has put forth their own nominees for a new AUSA board of directors to be elected as part of the company’s upcoming annual general and special meeting on November 17.
Both AUSA and the Concerned Shareholders have sent out their documents and materials on their respective board nominees. Now it’s an election-type march with back and forths between both groups heading into the deciding vote.
AUSA was originally spun out of Aurora as a separate company looking to invest in the US cannabis market. Aurora confirmed it still holds 22 million AUSA warrants, which 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 with three key cannabis assets: it’s kiosk business venture, it’s current share ownership in Body and Mind (CSE:BAMM,OTCQB:BMMJ) which has exposure to Nevada and California and a cannabis brand portfolio recently acquired.
“That’s number one, cleanup the assets we have. We have good cannabis assets, there’s no reason we shouldn’t maximize them.”
The executive spent some time explaining 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 in his view companies operating in the US need to be careful before deploying capital in hard assets such as growing facilities or dispensaries given the regulation changes seen at the state and even city levels.
“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 deck presentation made available to investors, the company outlined 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.
As part of the call DeMott took back the confirmation from the document and instead said the management team plans to explore the feasibility of launching one.
“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 way of 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 date expires without the transaction being completed, investors get their money back.
During the call DeMott was also asked 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 in the industry.
DeMott’s closest connection to the business of cannabis comes from acting as an early investor with Columbia Care, a multi-state operator in the US which started its journey in the capital markets as a SPAC. The executive said he still held an approximately 16 percent ownership of Columbia Care’s license in Washington, DC, amongst the holding shares in Columbia Care.
“I’ve always been entrepreneurial in nature,” DeMott said to investors.
In an attempt to level with investors on his true intentions with the company, the leading executive said his pay was reduced to about half of what the previous CEO Scott Dowty was earning. DeMott started the job of CEO on October 5, however, he had 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 is that in the call.
According to a Canadian Insider transaction files, DeMott bought an additional 30,000 shares of the company at a price of $0.11 per unit at the start of October. The filing details indicated he held a closing balance of 130,000 shares.
DeMott used the explanation behind his salary as to demonstrate his goal with the company was to raise the share price of AUSA. “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 nearly four percent. As of 1:45 p.m. EST, the company traded at a price of 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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