A mass board resignation and a mysterious $2.5 million severance payment to the former general counsel highlight oversight concerns at Green Thumb Industries.
With thousands of companies holding AGMs during proxy season, it’s hard to know where to start. Glass Lewis’ Controversy Alert service can help, identifying the most crucial meetings globally and allowing investors to make better informed voting decisions with the latest information in hand.
In this post, we provide a roundup of the AGMs taking place this week that were previously highlighted by Controversy Alerts, and look deeper at the situation at Green Thumb Industries. To get alerted ahead of time, get in touch and sign up for Glass Lewis’ Controversy Alert service.
Controversy Alerts June 12 — June 16, 2023
6/12 Stelco Holdings Inc; Controversy Alert issued 6/2
6/14 Calibre Mining Corp; issued 6/2
6/14 Green Thumb Industries Inc.; issued 6/5
6/14 Toyota Motor Corporation; issued 5/30
6/15 Aneka Tambang; issued 6/1
6/15 Lyft, Inc.; issued 6/1
6/15 Teva Pharmaceutical Industries Ltd.; issued 6/5
6/16 Adani Enterprises Ltd; issued 6/1
6/16 Adani Transmissions Ltd; issued 6/1
6/16 IR Japan Holdings Ltd; issued 6/6
Deep Dive: Green Thumb Industries Inc.
Cannabis producer & retailer Green Thumb Industries is holding its first AGM since half the board resigned en masse on October 4, 2022. According to a company statement the decision, which was made by all of the company’s then-serving independent directors, was “not related to Green Thumb’s business performance, operations, financial performance, financial statements or financial controls, but rather over a disagreement as to the company’s policies and practices related to personal misconduct.” Well that’s a relief. The departed directors, William Gruver, Glen Senk and Dorri McWhorter, didn’t add much colour, filing a terse statement citing “material differences with Company management.”
It’s not the first time the cannabis company has made news not related to its business performance, operations, financial performance, financial statements or financial controls — in September 2022 a former employee alleged gender- and age-based discrimination, and there’s a racial discrimination case pending involving one of the company’s former scientists.
Notably the company’s former general counsel, Beth Burk, also resigned on the same day as the trio of directors, though she was not a signatory to their resignation letter. This factoid would have been easier to miss were it not for the appearance of a $2.5 million cash severance payment, exceeding previously disclosed contractual obligations, as part of a “Confidential Settlement and Release Agreement”. The company’s disclosure on the matter is somewhat limited, though credit should be given for shoehorning “received $2.5 million” in as the third item in an otherwise jargon-y rundown of post-employment technicalities:
In connection with Ms. Burk’s resignation from the Company, the Compensation Committee approved the terms of a Confidential Settlement and Release Agreement with her pursuant to which Ms. Burk (i) continues to vest in her outstanding equity awards through October 4, 2023, one year following the date of her termination as if she were still employed; (ii) has the right to exercise her outstanding Options until October 4, 2023; (iii) received $2.5 million; and (iv) will be reimbursed for any health insurance premiums she incurs under COBRA for 18 months following her termination date. (Emphasis added)
Since then, despite not having established a nominating committee, the board has nonetheless restocked itself with three new independent directors, along with a new non-independent director who serves as a marketing consultant to the company. That leaves the board composed of two directors with ongoing business or consulting relationships to the company, two executives directly employed by the company, and three independent directors.
That’s below typical independence thresholds for Canadian corporate issuers, but in this case the CEO and founder, Benjamin Kovler, controls 39.7% of the company’s voting rights. Kovler, who has compared cannabis to the telecoms industry and himself to John Malone, the “cable cowboy” chairman of Liberty Media, doesn’t actually own nearly as much of the share capital (just under 8% at latest check); instead he maintains nigh-control thanks to a multi-class share structure that gives “super voting rights” shares (of which Kovler controls nearly three-quarters) 100x the voting power of ordinary shares. Less extreme versions of these multi-class arrangements (normally capped around 10x) are common for early stage companies where the founder brings unique expertise, knowledge and vision, but shareholders may have questions about the severe inequity of, and potential for sunsetting, the 100:1 share structure.
Of course, shareholder questions may focus on more mundane topics, like the company’s slumping share price (an industry-wide problem, to be fair) and the perennial lightning rod of executive compensation – beyond that severance payment to Burk, it’s not entirely clear why a CEO who’s already materially invested in the company needs a bonus opportunity worth 3x salary to be incentivized, and why a program so overwhelmingly focused on short-term performance doesn’t include a clawback policy.
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