Last week, fewer than three months after his ouster from his role as CEO of Canopy Growth (TSX: WEED) (NYSE: CGC), Bruce Linton announced several new roles, including Executive Chairman of privately-held Gage Growth Company, an investor in SLANG Worldwide (CSE: SLNG) (OTC: SLGWF) and a Special Advisor to Better Choice Company (OTC: BTTR), a pet health and wellness portfolio company with several brands that include hemp and CBD as ingredients, over the next five years.
In its press release announcing Linton’s role, the company pointed to his knowledge of CBD and the value of his network:
Bruce is an immensely successful, well-respected entrepreneur and a visionary in the cannabis space with a deep passion for animal health. A core focus of our partnership will be developing a more comprehensive understanding of the benefits of CBD and other cannabinoids for animals in federally permissible ways.
Damian Dalla-Longa, Better Choice CEO
Additionally, as Bruce has built a tremendous amount of shareholder value and an established international network, his expertise is irreplaceable as we continue to grow and expand our global platform.
Better Choice paid up to get Linton, who has a strong belief in the future of cannabis-based treatments for animals, to get on board. In an 8-K filing from September 23rd, the company revealed that it has awarded him two tranches of warrants. The first tranche of 2.5 million warrants has an exercise price of $0.10 and vests over the next eighteen months. The second tranche consists of 1.5 million $10.00 warrants that vest on March 21, 2021. Both warrants can vest more quickly under certain conditions and expire in 10 years.
The stock of Better Choice closed last night at $3.65 but closed on September 16th, the day before the deal was announced, at $4.15. This suggests that the intrinsic value at the time of the award of the warrants was $4.05 per share, or $10.13 million. This doesn’t include the value of the second tranche of warrants, which are valuable given the 10-year expiration.
The company, which was formerly known as Sport Endurance, entered the CBD space with a $2.2 million acquisition of TruePet LLC in December (paid with the isusance of 14.08 million shares) and changed its name in March. It later acquired Bona Vida by issuing 18 million shares. Note that these share amounts are after a 1-26 reverse split conducted in March. The company is delinquent in its quarterly SEC filings but last reported approximately 41 million shares outstanding. The stock of Better Choice, which responded favorably initially to the news of Linton’s role but then sold off, has very low trading volume:
While Linton’s package appears to be worth more than $10 million, the reality is that he is getting paid in untested stock. For this reason, he insisted on a one-year lock-up of shares by the Board and key shareholders representing 32% of the shares issued. Animal health is certainly likely to be a good market for CBD companies, but Better Choice will face competition from many players, including Linton’s former employer.