Cannabis investors have right to know bad news

Shareholders in cannabis firms are anxious about their investments, the profits and the coverage of them. It is seen as riskier than most investments because there is no historical data to track and because it is likely, in an emerging market, that there will be some great successes and some spectacular failures. In fact, according to a recent internal e-mail viewed by The Globe and Mail, TD Bank is discouraging clients from investing in the marijuana sector. The bank is prohibiting its financial advisers from pro-actively adding most cannabis shares to clients’ investment accounts.

But, spurred on by online conversations with investors on Reddit last month, several were quick to criticize The Globe and Mail’s coverage of one company, Aphria, which was buying a smaller cannabis firm, Nuuvera.

A few of these shareholders and interested parties wrote to me to complain that three recent articles about the deal were unethical for, in their words, “attacking” Aphria. One quoted the words of The Globe’s Code of Conduct, which says “the credibility of content rests on solid research, clear, intelligent writing and maintaining a reputation for honesty, accuracy, objectivity and balance.”

What riled them most was that The Globe covered a report posted initially on an investing forum site that raised red flags over the purchase of the smaller company by Aphria. While the author of this online report was not listed, The Globe’s capital markets reporter Christina Pellegrini found out it was the chief executive officer of a U.S.-based hedge fund research firm. She spoke to him on the record and included his criticism of the deal, mainly that Nuuvera had – in his words – almost no revenue. Her report appeared online the day after the investing forum posting. She also tried to reach Nuuvera but their representatives did not respond to multiple e-mails and voicemails.

Covering the criticisms of short-sellers is not unusual in the Report on Business. While they might profit from a lower price, they can point out flaws that the investor should know about, as long as their motive as a short-seller is included. And the fact that the person was a short-seller was clearly stated in Ms. Pellegrini’s article so all could judge any potential bias.

In just one month, there were many stories quoting short-sellers on Tesla, Shopify, Maricann Group (medical marijuana), Sino-Forest and Netflix.

The shareholders and others complained that the article about the short-seller wasn’t balanced because there was no comment from the Ontario Securities Commission. In fact, the reporter did ask the OSC for comment on two separate occasions.

Readers also asked questions about The Globe’s past coverage of Aphria and its contentious investments in the United States. Aphria was pushing into the medical cannabis markets in Arizona and Florida, two states that have eased restrictions on the drug. However, marijuana remains illegal under U.S. federal law.

The U.S. legal dynamics became front-page news in 2017, when TMX Group Ltd., the operator of Canada’s largest stock markets, suddenly questioned the legal risks it could face by listing the stocks of companies violating U.S. federal law, including Aphria.

Last summer, The Globe published multiple stories pointing out that Aphria was permitted to expand into the United States while its shares were listed on the TSX Venture Exchange and later the Toronto Stock Exchange. The Globe covered the about-face by TMX and called on its exchanges to clarify their listing policies in writing. Last October, when the TSX did this, it became clear that Aphria was in breach of those rules. The Globe reached out regularly to Aphria and its lawyers for comment during this time.

The final complaint from readers and investors was that one of The Globe’s articles changed from a short news story online to a more extensive one with an interview with the Aphria CEO. Some of the investors suggested the longer story was covering over errors in the initial story, but that was absolutely not the case. If there are significant errors, stories are updated with a note including what was wrong in the initial article and what was corrected.

It is normal practice to update stories during the day. In this case the interview was exclusive and it was important to get the news out to readers as quickly as possible. For the newspaper and online the next day, reporters often take time to add more information and perhaps talk to other people. It didn’t change, it expanded.

The suggestion that the coverage was unethical is flat out wrong. The Globe and Mail has an extremely strict policy within its code of conduct for Report on Business staff to avoid any possible charges of bias or conflict of interest.

Staff members should not write about any securities they own or they should never trade on information they know. Here are just a few of the specific rules:

• “ROB reporters are not permitted to make personal investments in companies they are likely to write about as part of their usual assignments.”
• “Staff members are not permitted to buy shares in an initial public offering.”
• “Staff members who have advance knowledge of specific investment news should not make a securities transaction related to that news until it has been published for a full market day.”

Aphria’s stock fell after The Globe’s reporting on the Nuuvera deal. And recently, the Bank of Montreal, which is leading stock sales and advising on deals, has assigned a cannabis analyst to study these markets.

It’s interesting that late last month, Aphria announced it was improving its corporate governance by adopting a formal policy for how company insiders can invest in other cannabis companies.

In business journalism and all journalism, it is important that the public is aware of the news that companies, leaders or politicians may and may not want to share, the positive and the negative.