Marijuana Business Magazine April 2020

April 2020 | mjbizdaily.com 45 shares or options, directors are generally unable to block such grants, said Danny Moses, adviser at New York-based cannabis investment group Merida Capital Partners. Another misstep by some companies offering options is to set the strike price too low, argues Craig Behnke, equities analyst at Marijuana Business Daily ’s Investor Intelligence subscription service. Doing this when the price to exercise such an option is equal to or lower than the current share price of the company offers little incentive for an employee to hang on to that option. In that situation, staffers typically want to cash out rather than work to improve the company with the hope of reaching a higher stock price. This, in turn, dilutes the share base, lessening the value of an individual employee’s shares overall. “That can become quite dilutive over time,” he added. REAL-LIFE EXAMPLES One recent example of such possible dilution was the decision by top executives at Arizona-based multistate operator Harvest Health & Recreation executives to surrender a total of 2.4 million of their individual stock options to employees. “Our employees are some of the hardest working in the industry, and this award is meant to recognize both the accomplishments of the past year and the expected commitment to achieving profitability ahead,” Harvest CEO Steve White said in a news release. While an altruistic and positive move on the surface, the strike price of the surrendered options was set at the company’s then-current market price of around $2.85 a share versus the original strike price of $6.79 per share for the executives. “We like to see companies use stock options as a component of employee compensation to better align shareholder and employee interests,” Behnke argued. “We prefer to see the options granted with a strike price significantly higher than the current stock price. That structure can provide strong incentive for employees to create long-term shareholder value.” Poorly handled or not, options remain a key way for companies to get talented people through the door. Such businesses just have to adapt to the new realities, Vangst’s Humiston said. “We encourage companies to be honest about this because it sets a relationship up better with candidates,” she said. “We have seen some companies getting into legal trouble when they have overpromised.” Source: The Marijuana Index, Yahoo Finance © 2020 Marijuana Business Daily , a division of Anne Holland Ventures Inc. All rights reserved. North American Cannabis Stock Index Performance Versus S&P 500 Jan. 1, 2018, Through Feb. 24, 2020 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 -60% -40% -20% 0% 20% % Di ff erence in Close Price North American Cannabis Index S&P 500 Source: The Marijuana Index, Yahoo Finance Copyright 2020 Marijuana Business Daily , a division of Anne Holland Ventures Inc. Craig Behnke