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In May, Cannabis Wheaton Income Corp., a company that finances other marijuana operations in return for a financial interest in those entities, announced a private placement. Eight Capital and Canaccord Genuity Corp. were the lead underwriters.The Associated Press

A number of executives at Eight Capital Corp. have left the independent brokerage firm, weeks after it was involved in a controversial, and unsuccessful, financing deal for a new marijuana company.

The departures, which took place over the past month, included former chief executive officer Mark Attanasio and Donato Sferra, who was managing director of investment banking, according to people familiar with the situation.

Mr. Attanasio did not respond to a request for comment, while Mr. Sferra could not be reached. Eight Capital's new CEO, David Morrison, did not respond to a request for comment.

In May, Cannabis Wheaton Income Corp., a company that finances other marijuana operations in return for a financial interest in those entities, announced a private placement. Eight Capital and Canaccord Genuity Corp. were the lead underwriters.

Read more: Eight Capital switches CEOs after failed cannabis deal

But the deal came undone when it was revealed that certain employees at Eight and Canaccord held significant amounts of Cannabis Wheaton shares, acquired on the cheap, at the same time as they were attempting to raise some $80-million for the marijuana firm.

The Cannabis Wheaton deal illustrates both the Wild West nature of the nascent market for marijuana companies and the potential hazards for those involved in it. Dozens of marijuana companies have gone public on Canadian stock exchanges amid a move toward greater liberalization of drug laws – including a plan by Ottawa to legalize possession and cultivation of it, within limits, next year.

But while investors have flocked to the sector, sensing the chance to get in on the ground floor of a newly legal business, many of the companies are unproven. Most, like Cannabis Wheaton, are relatively small and are listed on junior exchanges, where regulation is less strict. A number of them operate within a legal grey zone. For example, the Toronto Stock Exchange has put an informal freeze on new listings of marijuana companies with U.S. assets because of a lack of clarity surrounding American laws. (Many states have some form of legalized access to marijuana – particularly for medical purposes – but there are still federal statutes that make the drug illegal, and the Trump administration has indicated a preference for enforcing those laws.)

According to a press release issued in May, representatives of Eight and Canaccord owned 13.1 million shares in Cannabis Wheaton and an equal amount of warrants. The holdings, which sources previously said were issued at a deep discount, amounted to roughly 8 per cent of the shares as of May. Mr. Attanasio and Mr. Sferra were among the individuals who owned stock.

The practice of capital markets employees owning seed stock in companies, while not illegal, is generally frowned upon, as it can be perceived as a conflict of interest.

In the immediate aftermath of the financing deal being called off, Mr. Attanasio initially remained with Eight Capital, but was demoted to managing director of investment banking from CEO. Mr. Morrison succeeded him as CEO.

Eight Capital is one of several independent dealers to benefit from a thriving marijuana sector over the past 18 months. The firm had led or co-led more than a dozen stock sales. Since the controversy at Cannabis Wheaton, the firm's pace of deal-making has slowed, according to data from Thomson Reuters.

In addition to the departures of Mr. Attanasio and Mr. Sferra, Eight has seen a number of other employees leave over the past few weeks. Josh Wolfson, principal, metals and mining research, and Shant Poladian, an investment banker who specialized in the real-estate sector, also recently left the firm, according to sources.

Mr. Wolfson confirmed via e-mail that he had resigned, but did not elaborate.

Mr. Poladian, meanwhile, did not respond to a request for comment. His LinkedIn profile indicates that he left Eight Capital in July. "Grateful to have worked with some bright people at Eight Capital in launching a well-capitalized boutique investment bank over the past year. Look forward to seeing how the business evolves and wish my friends all the best," he wrote in a post on the site.

Eight Capital was spun out of Dundee Corp. in December, 2016, as an employee-owned, independent brokerage firm. Dundee remains a stakeholder via a subordinated loan, but owns no equity.

Cannabis Wheaton went public in early May via a reverse takeover on the TSX Venture Exchange. The shares traded as high as $2, but have since lost more than half their value, closing on Friday at 75 cents.

Andrew Willis of Report on Business tells investors why they should be wary of buying into private pot businesses going public

The Globe and Mail

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