Cannabis Wheaton bought deal is puzzling, Andrew McCreath says

Auxley Cannabis Corp (formerly Cannabis Wheaton (Quote, Chart TSXV:XLY) this week announced a new bought deal worth $100 million, with BMO Capital Markets as lead underwriter.

And while big financing rounds have become commonplace in the still largely speculative cannabis space, the announcement is likely to raise more than a few eyebrows due to concerns surrounding CBW’s botched financing round last year.

Self-proclaimed as the world’s first marijuana streaming company, Vancouver-based Cannabis Wheaton was the focus of conflict of interest allegations related to an $80 million private placement signed last May with investment bankers Eight Capital and Canaccord Genuity. Reportedly, when news broke that employees at both banks held significant personal stakes in Cannabis Wheaton totalling eight per cent of the total shares outstanding, fund managers stopped meeting with the company and as a result, Cannabis Wheaton scrapped the deal and temporarily halted trading of CBW.

One week after the news broke, CEO Chuck Rifici responded by insisting that all actions by his company had been duly disclosed.

“Over the preceding week the Company has been the subject of multiple inflammatory false or misleading reports, published primarily online by persons seeking to discredit the Company. Cannabis Wheaton as well the Co-Lead Agents have been referenced and targeted about various matters, including the ownership of securities in Cannabis Wheaton by employees of the Co-Lead Agents, despite such ownership being disclosed in the Company’s press release dated May 23, 2017,” Rifici said in a statement.

The company now seems to be out of the doghouse with the new BMO deal. BMO made headlines earlier this year by becoming the first of the big banks to lead a financing round, that one a $175-million bought deal with Canopy Growth Corp (TSX:WEED).

But BNN Bloomberg’s Andrew McCreath says he’s shocked by the new deal. Speaking of last year’s pulled financing, McCreath said, “The management of the two underwriters involved in this case were not aware of the [insider deal] being made. When they were aware of the deal that Rifici on behalf of Cannabis Wheaton had made with those individuals, those underwriters pulled out.”

“One year later, Bank of Montreal puts the blue stamp (no pun intended) on Cannabis Wheaton by raising $100 million in a bought deal and, yes, it’s the same CEO Chuck Rifici. I’m amazed,” he says.

McCreath adds further intrigue by saying that two Canadian funds have bought the majority of the underwriting, allegedly on the promise of special borrow privileges with Cannabis Wheaton.

“[The two funds] apparently, in a very legal transaction, have struck a deal with insiders at Cannabis Wheaton that allows them to access borrow, short the stock and clip the warrant that comes with the unit deal that BMO did last night,” McCreath says. “I just find it incredible that stuff like that is allowed to happen.”