When you hear that the former Chairman of a $2 billion NASDAQ-listed tech company is at the helm of a company jumping into the medical marijuana sector, your first notion might be to buy up a ton of shares and get set for a wild ride.
Chances are, a wild ride is what you’d end up with, but whether it’s a ride you want your RRSP on is open to debate.
Greenbank Capital (
CSE:C.GBC,
Stock Forum) was known, early last year, as Greenbank Mining Capital until CEO Danny Wettreich spotted opportunities in Bitcoin. The ‘mining’ part of the company name was duly ditched and a new direction was announced.
But regulators stepped in and put the kybosh on Wettreich’s plan to set up a Bitcoin Investment Fund, and so it went that Wettreich turned his company around once more, emerging from the dust as a medical marijuana company Monday.
From gold to currency to drugs: You have to give Greenbank this much, it sounds like they know how to throw a party.
Greenbank stock jumped 83% on the marijuana switch announcement. It lost most of that increase by lunch, almost all of it by close.
Why would that happen? Possibly because the Wettreich’s have a strategy that, while not illegal in any way I can see, has left a trail of mostly dead companies in its wake over the past few years.
Greenbank Capital came out of a spin-off from Winston Resources (
CSE:C.WRW,
Stock Forum) (which was formerly Gorilla Resources) in February of last year. The company became a holder of Winston stock when Danny Wettreich
sold it 4 million of his personally held shares.
Mark Wettreich, the son of CEO Danny, ended up with 43.75% of that company when he was the sole participant in a private placement round that raised $100k at $0.05 per share, and a similar amount from a warrant purchase later. Pappy Wettreich picked up a chunk of options. Suffice it to say, the Wettreich’s control the company which, today, has a market cap of $1.4 million.
This is important to note because the Wettreich clan has controlling interest in a lot of companies (with market caps of a similar range or lower), most of which they acquired in shares-for-equity takeovers, often finding their targets in mining companies that had fallen hard and run out of cash, with shareholders who had lost basically everything, and with directors and management looking for an exit that didn’t involve tar and feathers.
Here’s how the Wettreich takeover works.
When they spot a desperate victim, Danny Wettreich will offer the ailing company a lifeline – he’ll give them shares in one of his companies in exchange for their horrible no good stinkin’ shares of their own company.
If they say no thank you, he may issue press releases
complaining of how the board is killing shareholder value and how he’s offering a premium-priced way out and is a management expert who will return the company to glory.
Most jump at the offer in the hope that their big chunk of nothing can be a smaller chunk of something going forward.
As soon as
the offer is accepted, Wettreich
puts out an NI 43-101 that says, in a nutshell, there might be rocks under the ground but we don’t really know because we haven’t looked yet but hey, there’s no evidence that there ISN’T something down there…
He might then consolidate the outstanding shares, then launch a small private placement ‘to cover operating expenses’ that will increase the Wettreich family shareholding of what is now a much tighter share structure and which may give the family enough of an interest in the company that they can run their own AGM at the next family reunion.
Then they’ll
sling a few options out there so there’s something to enjoy later, and just when shareholders are ready for them to demonstrate how their management is better than the previous management,
they spin off the new company’s assets into YET ANOTHER CSE-listed company, which the old shareholders will be gifted a few shares in so they don’t cause any trouble – which they won’t do because, well, it’s not their company anymore.
If there’s any debt, that’ll likely
have to be
converted to
common shares because,
well, they
don’t have a whole lot of money coming in.
Low six-figure private placementsarecommon. In fact,
PPs under $100k are pretty common. So too is the act of
giving blocks of shares away to associates as gifts.
That new company, often, will engage in a similar process, going out to find another struggler or two that can be picked up on the cheap, with the assets spun off again into another listing that will inevitably end up on the CSE because the Venture Exchange requires more due diligence.
Greenbank, which was started in this fashion, owns a piece of three other companies that came into Wettreich hands in the same way.
Hadley Mining (
CSE:C.HM,
Stock Forum) has a nickel project in Ontario that currently produces no nickel and that nobody has ever dug a hole on, to my knowledge. When Winston spun the company off, Winston shareholders got around 10% of Hadley shares. Winston Resources itself (which the Wettreich’s control) still holds 40%, and Greenbank (which the Wettreich’s also control) owns the remaining 49% or so.
Hadley hasn’t earned a cent in the time since. In an MD&A recently, the company stated, "In order to maintain its operations the Company needs funds for primarily management fees, legal and accounting." Which means, in return for 100% of a property basically worth nothing, Winston shareholders got 10% of a property basically worth nothing - and they're still paying management fees for the privilege.
Zara Resources (
CSE:C.ZRI,
Stock Forum) is another Winston spin-off. Zara owns two projects, a nickel-copper project and a gold project, both in Ontario. Nothing is being produced there. Nothing is being drilled. Zara has a market cap of $383k and a share price scraping bottom.
But that’s not to say the company isn’t in play.
Zara made history of a kind last year when it went after
THREE Venture-listed takeover targets on the same day; Visible Gold (
TSX:V.VGD,
Stock Forum), Greencastle Resources (
TSX:V.VGN,
Stock Forum), and Altai Resources (
TSX:V.ATI,
Stock Forum), in shares-for-equity deals.
Wettreich announced this historic deal by saying, "This is a dramatic and innovative simultaneous offer for three public companies, and is designed to offer the shareholders of these companies the opportunity of participating in the creation of a viable natural resource company led by the dynamic, experienced and innovative management team of Zara.”
Zara hasn’t exactly shown ‘dynamic, experienced and innovative management’ in the time since that offer, having seen their stock plummet from $0.17 to $0.005 as I write this.
Visible, on the other hand, has climbed from $0.02 up to $0.07 since the offer, with a market cap over ten times that of Zara’s. Greencastle, likewise, has been doing business without Wettreich’s help, recently
acquiring a piece of Nikos Explorations and reporting on its
first well at Alberta’s Spirit River. It boasts a market cap eight times that of Zara. Altai hasn’t lit it up, but with a $3m+ market cap, its investors are happier than Zara’s.
But when Visible’s board refused to play ball with his offer, Danny Wettreich didn’t hold back the fury,
flinging allegations in several news releases, inclduing one in which he said the following:
"The current Visible Board, which collectively owns only 1.6% of Visible, is engaging in unacceptable stalling tactics designed to perpetuate the current board's entrenchment, allowing them to continue to enrich themselves at the expense of the company's shareholders. The current Visible Board has a statutory and fiduciary obligation to call a shareholders meeting without further delay to be held as soon as possible to permit shareholders to have their say. The directors have received $769,585 in fees while Visible shares have collapsed 96% and shareholders deserve a chance to vote for a new board of directors. If the current Board fails to call a shareholders meeting within the required time, I have the option of calling the meeting myself as prescribed by the Canada Business Corporations Act."
A statement by Visible in reply accused the raider of dirty dealing, saying, “Visible Gold Mines has also noted the sale by Mr. Danny Wettreich, CEO and principal shareholder of Zara Resources, of almost 2 million Visible Gold Mines shares on August 19, 2013, the day on which Zara Resources first announced its offer. Visible Gold Mines considers the sale to be in direct contravention of applicable securities laws.”
That’s not a claim that, as far as I know, has been tested.
Regulators in Quebec essentially killed the three-way-takeover deal by making use of a technicality; they said the offer documents needed to be translated into French and then looked over by the Bureau de Decision et de Revision (Quebec). That was in September of last year.
On March 28 of this year, Winston Resources posted an MD&A to Sedar that stated the company was still working on that translation.
I’m pretty sure I could learn French and rewrite the documents myself in that time but, as of now, the offers are still on hold. Considering the current share prices of the related companies, it would be surprising if the offers were ever spoken of again.
But should the offers be accepted at some time in the future, there can be little doubt that all three companies will be added to the Wettreich-controlled portfolio of shell companies, which includes the largely dormant Zara spin-off Leo Resources (
CSE:C.LEO,
Stock Forum), and Churchill Natural Resource Mining (
CSE:C.CND,
Stock Forum), of which
just 15% was spun out of Winston Resources when it was granted its own CSE listing. The other 85% stayed with Winston.
Let’s go to the tale of the tape:
- Greenbank Capital: $0.15 per share, $1.4m market cap.
- Winston Resources: $0.01 per share, 383k market cap.
- Zara Resources: $0.01 per share, $383k market cap.
- Hadley Mining: $0.015 per share, $375k market cap.
- Leo Resources: $0.02 per share, $274k market cap.
- CNRP Resource Mining: $0.01 per share, $140k market cap.
That’s six listed companies with a combined total market cap of $2.95m, averaging out at less than half a million dollars in worth for each, all on the CSE.
I asked Wettreich at the recent PDAC Vancouver Resource Investment Conference why his mining companies weren’t actually doing any mining, or even in-ground exploring, and he replied that the market was bad for raising finance so they were on the shelf until things got better. Fair enough I guess, so I asked him why he was trying to buy three more mining companies through Zara if the market was so bad, and he said the market will be good sometime soon, so it made sense to collect what he could. Also, those companies had property and cash in hand so, why not?
Which is different to what he was telling shareholders during the Zara takeover blitz.
At the time, Zara was describing its business concept as being “to acquire small-cap companies with under-valued or poorly managed assets and bring a disciplined management focus to unlock asset value and establish a natural resource company focused on creating value for shareholders.”
Let’s take a moment to point out here that none of the above is illegal – or, at least, nobody has proved it is in a court of law or a regulatory hearing. It’s all perfectly okay under the rules of the CSE, which Wettreich told me grants him a new listing ‘within a few weeks’ of him calling to ask for one, to spin off assets into new assets and have those acquire more assets which will be spun into new assets still.
Investors of such companies, as a collective, don’t look too far forward when their formerly $2 shares are sitting at $0.02 and the board isn’t talking to them and someone comes out of nowhere with an offer to ride the great white horse of Winston, or one of its foals.
If they did take a deeper look, they’d see that Wettreich hasn’t returned value on any of his targets for at least the last several years. In fact, you can go further back than that – Wettreich is a controversial figure who doesn’t shy away from putting his name forward, so
there’s plenty of reading around.
Added to which, when I hit him with some serious questions in front of A LOT of onlookers at the PDAC event, he didn’t take a step back, didn’t flinch, had answers for every question that were practiced and detailed, and he even consented to be asked more on camera.
I kind of like Danny Wettreich, if I’m honest. He knew what I was fishing for, was in no doubt that I was looking for ammunition and was doing so in front of potential investors, and he didn’t make excuses, didn’t back away, didn’t for one second give off an air of impatience or anger, he didn't spin and, even when cornered, always had the ultimate defense: He’s working within the rules.
Frankly, if he were actively driving a single company forward, he's the kind of teflon don who I could get behind. Unfortunately, his business is in squeezing value out of many businesses.
His track record goes back to the dotcom boom, when he was Chairman of Camelot Corporation, and a few decades beyond. According to reports, he had regularly taken over ailing companies with a promise to correct them and provide shareholder value, only to leave firings, asset sales and, often, frustrated management and investors in his wake as the former company would be RTOed into something else.
With all that said, I’m not going to accuse him of doing anything wrong.
After all, it’s the CSE that keeps allowing them to spin-off into new listings, it’s the CSE that is supposed to be watching out for investors, it’s the CSE that allows companies left and right to engage in reverse takeovers rather than go through the regulatory-heavy and often revelatory IPO process, and it’s investors and short-sighted, desperate management that welcome his hand as they try to get above water.
Wettreich plies his trade on the CSE because he can, seemingly with impunity. On the Venture, more questions might be asked and delays instituted. Paperwork must be done. Responsibilities to shareholders seen to. And listing on the TSX comes at an elevated price that makes listing-hoarding tough to pay for.
Wettreich is a vulture, to be sure, but capitalism is a place where vultures can thrive, clearing away the carrion and moving on. Many of North America's wealthiest people are vultures - hedge fund managers and short sellers and market movers.
If the Wettreich’s are able to legally turn one empty company into five or eight, without spending a dollar of their own cash buying equity, why shouldn’t they? And if they can flip those shells into reverse takeover targets, and nobody cares to stop them from doing so, why not?
The bigger issue here isn't whether Wettreich is good for a company, it's whether he returns shareholder value, being as Winston and its subsididaries and spin-offs has literally no record of creating any over the past few years.
When Greenbank dives into medical marijuana, is it forging a new Wettreich path with value aplenty for Johnny Lunchpail, or is it a means to get a quick share bump that can allow the Wettreich’s to offload their heavy holdings at a premium rate?
You must give Wettreich credit for one thing: He is hidden in plain sight. He has a personal website (
https://www.dannywettreich.com) with lots of information on his past, and he isn’t one to shy away from his failures – at all. Obviously you can't be in this business since the 70's and not have had failures, but he's had at least one doozy.
In 1996, Wettreich sent out
this note to shareholders of Camelot Corporation, of which he was the Chairman, and which now sits on his personal website, alongside a video of his speech accepting a ‘leadership award’ from the US uber-right wing Heritage Foundation.
“I am pleased to report to shareholders on another exciting year in the development of your Company. The number of our shareholders has increased from approximately 3,000 to approximately 13,000, as investors recognize our potential. Your company is now focused on software development, software retail and distribution, and internet services. During the financial year, we have attracted institutional investors who participated in several rounds of equity financing, raising a total of $22,330,214 for the Company, and I extend a warm welcome to all our new investors.”
Exciting times. Camelot, at one point, had a valuation of $2 billion on the NASDAQ, having started out as a penny stock touted on the Prodigy online service. Wettreich, at the time, reportedly boasted Camelot would have 100 “Mr CD-ROM” retail stores across the US by the end of 1996, and that his Digiphone internet telephone service would drive big profits on Mr CD-ROM shelves. So share price-driven was Wettreich at the time that he even had the company stock symbol placed on product advertising.
Alas,
the software didn’t work, and stock prices tumbled. Lawsuits abounded.
Wettreich said at the time, on the topic of lawsuits he has faced, "The more inventive a company is about creating its public structure, the more it tends to invite litigation."
Indeed.
But hey, the past is the past, so let’s look deeper at Greenbank as it stands right now.
To be sure, a grey track record makes it difficult to keep playing the ‘my name is Danny and I’m here to turn your company around’ routine, so it was with great gusto that the Wettreich family announced they were shifting into Bitcoin last year as Greenbank Mining Capital became Greenbank Capital.
No more empty 43-101’s, no more haggling with French Canadian regulateurs, no more trying to convince people ‘this time for sure’ on the whole putting drills in the ground routine.
Bitcoin was shiny. New. Profitable. Soaring!
At that PDAC conference, the Wettreich’s were on fire, happily and loudly telling passersby (who tended to be elderly and not very knowledgeable about Bitcoin) about how secure Bitcoin was, how it was the future of money, and how Greenbank was going to split investors’ cash into two funds – one to invest in Bitcoin itself, and another investing in Bitcoin startups.
Let’s leave the whole ‘secure’ thing to the side for now… *cough*MtGox*cough*.
I asked the Wettreich’s why I needed them to invest in Bitcoin for me since I could contact any Bitcoin exchange (or ATM) and do it myself, to which they reasoned that some people struggle with dealing with bitcoin exchanges and needed the help . They wanted to be for Bitcoin what AOL is for old people on the internet. And for just 10% of your profits when you cash out, plus management fees. Deal!
Regulators, it seems, had similar questions to mine and in the months since have shut the investment side of Greenbank down, reminding the Wettreich’s their company
was not an investment fund manager and shouldn’t be acting like one until such a time as they fix that little oversight.
Suitably chastened, the Wettreich’s took a month to set Bitcoin aside and announce Greenbank would be moving in to medical marijuana, establishing a new subsidiary, Canada Marijuana Agricorp, which intends to apply for an MMPR license and has ‘entered into an agreement’ to lease 20 acres of land near Tweed, Ontario (yes,
Tweed, Ontario), on which it will put greenhouses and solar energy panels.
From
a statement Monday:
The company “aims to commence commercial medical marijuana growing operations as soon as its producer license is granted. The lease of the Tweed, Ontario land is for an initial term of three years with options to renew. Power for growing operations will be provided by solar energy, and a local consultant has been engaged to supervise growing operations. Plans are being formulated for the construction of greenhouses and storage facilities to facilitate year round production capabilities. The use of greenhouses will facilitate the growing of medical marijuana through hydroponic processes.”
Look, I’m no grow op expert, but I think the moment someone plants marijuana on 20 acres of land in Ontario, greenhouses or not, the entire college population of the northern United States and eastern provinces of Canada will be convoying out to the property at 2am every Saturday until the thing is picked clean. It would seem, to me, an ill-considered business model that, at first glance, is unlikely to get through the MMPR investigatory process.
But maybe it will – after all, Health Canada hasn’t exactly proven that it knows what it’s doing in the weed world yet. Maybe this is the one that turns the Wettreich track record around. Maybe this is the big play they’ve been leading up to and all those mining shells will one day surge with green gold.
Maybe.
Let’s be clear: I’m not saying you shouldn’t invest in Greenbank. Or Winston, or Leo or Zara or Wettreich Medical Speed Therapeutics of whatever Hadley Resources might be next week. There’s always a chance one of them can catch lightning in a bottle, or have their listing sold to the next big tech startup through a Craigslist ad, or stumble upon a giant gold nugget while clearing brush in Tweed, Ontario.
I’m just saying, if you do invest in a Wettreich company, and you find tomorrow that it has been spun off and you now own 10% of a company that produces adult diapers and drill bits for a South Korean brand of homeware tools and a home-dentistry concept that was rejected by Dragon’s Den, you’d be hard pressed to suggest you weren’t warned.
Today, at the time of writing, Greenbank is up $0.00 on volume of 0. Winston is also up $0.00 on volume of 0. So too is Zara, Hadley, and Leo.
CNRP is down 80% on 5k volume. Giddyup.
One final thing to note: The day after Greenbank announced it was going into medical marijuana, it announced it was giving "two directors" a bunch of
'incentive' options. But of course.
(FULL DISCLOSURE: Greenbank Capital has been a Stockhouse Publishing client)
NEW PLAYERS:
Now covering Victory Ventures (
TSX:V.VVN, Stock Forum): Has formed a subsidiary called
Victory H.E.M.P. Bio-Tech Inc "to actively pursue and conduct due diligence on new opportunities including, but not limited to, the agriculture, legal medical marijuana and bio-tech industries."
UPPERS:
A few days back I put forward Affinor, Enertopia, Tweed and Papuan Precious Metals as weed companies to watch. Good to see them having big green days today after the two-day sector ass-kicking that came early in the week.
Satori Resources also got a rise today after a prolonged downward spiral.
In the US, most of the sector bounced back today as short sellers started to get squeezed.
DOWNERS:
On the downslide, mostly small players that are early in their medical marijuana conversion. A day for sector holders to take a breath.
INSIDE DIRT:
Formerly fueding Twitter touters The Wolf of Weed Street and Timothy Sykes put down their megaphones and connected yesterday, putting an end to the war that helped (at least in the short term) burst the medical marijuana bubble.
Sykes announced this morning he made $10k before breakfast with SPLI, which he had been torpedoing all of the last week.
TODAY’S MEDICAL MARIJUANA MOVERS:
Check back daily for the latest news in this sector.
For more stories on this sector, see our
Medical Marijuana section.
Follow me on Twitter at @ChrisParry
Send tips, news, suggestions to chris(dot)parry(at)stockhouse(dot)com