Terry Booth is set to take charge of Australis Capital (AUSA.CN), the Las Vegas-based pot investment company, whose former management has routinely painted the Aurora Cannabis (ACB.TO)(ACB) co-founder and former CEO as a shadowy puppet master looking to line the pockets of his “cronies.”
Booth would become Australis’ CEO as part of a deal announced Tuesday between the company and ALPS, a greenhouse design firm that was acquired by Aurora in 2017. The company was sold back to its former owner at a loss in May.
Under the terms of the deal, Australis will pay ALPS between $13.7 million and $26.1 million for a 51 per cent stake, and the option to acquire the additional 49 per cent. The amount paid will depend on performance-based milestones. The deal, if approved, is expected to close in the first quarter of 2021.
This is Booth’s second win related to Australis in recent months. Four senior executives were ousted in a heated proxy battle with a group of dissident shareholders backed by Booth. Casualties of a November leadership vote included CEO Harry DeMott, who had taken over the top job in October amid a flurry of management changes.
We kicked their butt. It wasn't even close. Terry Booth, co-founder and former CEO of Aurora Cannabis
“We kicked their butt. It wasn’t even close,” Booth told Yahoo Finance Canada in an interview. “I don’t know why they didn’t believe us.”
Booth said former management underestimated shareholder support for the activist group.
Despite months of tense public exchanges, he said he maintains a friendly relationship with DeMott, and the two regularly exchange text messages.
“Business is business,” he added. “The people that we brought on board are not all ex-Aurora cronies. In fact, our board has three people that I don’t even quite know that well yet, COVID being the part of the reason there. I’m not able to sit down and shake their hand.”
The group dubbed “Concerned Shareholders of Australis Capital” has alleged for months that previous management lacked a strategic direction and “misled shareholders on multiple fronts,” and claims they rewarded themselves with generous compensation packages. Australis’ management denied those allegations.
The activists took their message public for the first time in July, taking aim at a cash and stock deal to acquire Passport Technology, a fintech company founded and majority-owned by then-Australis CEO Scott Dowty. The deal fell apart when Passport Technology walked away in August.
The activists had announced that Booth was joining their campaign in August. Former high-ranking Aurora employees Jason Dyck and Roger Sykes were also involved with the group. Dyck was among the five new directors who shareholders voted to appoint in November.
Australis responded to the concerned shareholders in October by appointing new board members and installing DeMott, a company insider, as CEO. The activists were not satisfied with the changes, criticizing DeMott’s “abysmal track record as a board member of Australis,” lack of leadership experience and “inability to create value.”
The activist shareholder group said they collectively owned, directed or controlled approximately 8.45 per cent of Australis' outstanding common shares and claimed to have garnered support from owners of over 31 per cent of Australis' outstanding common shares. Influential proxy advisory firms Glass Lewis & Co. and Institutional Shareholder Services advised clients to back Australis’ slate of directors, rejecting the activist proposal.
At the end of the day it is him behind the curtain. Harry DeMott, former CEO of Australis Capital
Speaking on a conference call with investors ahead of the November proxy vote, DeMott called the activist campaign a “smokescreen to get control of the company” and predicted it was driven by Booth’s ambitions to seize control.
“I believe personally, and this is my personal belief, I can’t prove it, that if the dissidents win he will be named CEO, and that he will be added to the board without ever having been voted on. I don’t believe he wants to be on the slate [of nominated directors], because to put him on the slate is to open him up to scrutiny and all the attacks,” DeMott said on an Oct. 29 company conference call.
“At the end of the day it is him behind the curtain.”
Once a subsidiary of Aurora that focused on investing in U.S. states where cannabis is legal, Australis was spun off by the Edmonton-based licenced producer, and listed on the Canadian Securities Exchange on Sept. 21, 2018.
It followed a warning from the owner of the Toronto Stock Exchange in October 2017, saying every listed issuer must comply with all laws in the jurisdictions in which they operate. For Canadian pot companies that meant restrictions on directly owning pot producing assets south of the border, because the drug is federally illegal.
Booth retired from Aurora’s board of directors in June, after stepping down as chief executive officer in February following seven years in the top job.
DeMott has been highly critical of Booth’s leadership of Aurora. Since his departure, the company has shed hundreds of jobs and shut down a number of cultivation facilities built during his tenure as CEO.
“The origin of Australis was Terry Booth was CEO of Aurora. Terry likes doing deals. He likes to buy partial stakes in things. Not exactly what I would consider to be a highly detail-oriented guy in terms of making these deals,” he said on the Oct. 29 call. “He spun all of his grab bag of assets and opportunities off, and that became Australis. It was done in a hodge-podge manner.”
Shares of Australis (AUSA.CN), whose portfolio includes investments in cloud-based software for dispensaries as well as multi-state cannabis operators, have fallen nearly 95 per cent since their peak in 2018.
Cam Battley, Aurora’s chief corporate officer during Booth’s tenure as CEO, touted Australis as the company’s “advance team” in the U.S. market in a 2019 interview with Yahoo Finance Canada, referring to Aurora’s right to buy back a significant portion of Australis shares if U.S. federal laws permit cannabis sales. The company appears to be taking a different path to the U.S. under Booth and Battley’s ultimate replacement, Miguel Martin.
“I look forward to rebuilding the relationship with Aurora that Australis didn’t quite have,” Booth said. “I haven’t met with Miguel. I look forward to it. It has been set up.”
America will remain the focus for Australis under Booth, according to the Tuesday’s release. The company is looking to leverage ALPS’ global rolodex of cultivators to buy and grow low-cost cannabis, manufacture “high-end luxury designer products,” and sell them under Australis’ various brands. The company sees its recent string of deals, including the pending acquisition of Las Vegas-based medical pot producer Green Therapeutics, as the first steps in a profitable strategy.
“I’m pumped,” Booth said. “It’s been a crappy last seven months for Australis investors. A lot of them are family and friends from Alberta. They’re big investors. They’ve been patient with this dissident group. And now I want them to hold their heads up high.”
That deal to acquire Green Therapeutics not without controversy. Dr. Duke Fu, Australis’ current interim CEO, has ties to the company. The concerned shareholders group noted in October that he has served as Green Therapeutics’ CEO, which was at the time “embroiled in an ongoing lawsuit with AUSA.” The activists said this would make it impossible for him to exercise his fiduciary duties. Australis said in July that it would vigorously defend itself against the claims of breach of contract. It is unclear if the matter has been settled. Duke was on the slate of five new Australis directors backed by the activist group.
DeMott said he cannot discuss the details of Booth’s plan for the company that he is aware of due to a non-disclosure agreement. He said he expects the “cadre of hand-picked ‘yes’ men... led by Terry and his cronies” to implement a strategy that’s more capital intensive than expected and “thin on detail, but thick on conflict.”
“I think the price that shareholders will pay for it to work is one that shareholders probably can’t afford,” said DeMott. “That's all I’d say about their plan.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.