Five Things the CSE is Excited About for Extraordinary Future 2018

Canada’s leading technology and innovation conference, Extraordinary Future, is just around the corner and this year’s show is bigger, better and bolder than the highly successful first edition held in 2017.

Featuring a unique blend of both publicly traded and private companies, Extraordinary Future showcases cutting-edge ideas and products as well as the companies bringing them into reality.

Produced by Cambridge House International, this year’s show will take place over two days, September 19th and 20th, at the beautiful Vancouver Convention Centre in downtown Vancouver.

With over 2500 attendees forecasted to attend and 70+ companies exhibiting spanning everything from quantum computing, to blockchain to healthcare, there’s lots to be excited about at this year’s show.

Here are five things the Canadian Securities Exchange is particularly excited about for Extraordinary Future 2018:

Dynamic Speakers

This year’s speakers represent a diverse cross section of the innovation spectrum. Starting first with a central figure in the conversation around weaponizing data, Christopher Wylie. As a social researcher and data scientist, Wylie also formerly served as the Director of Research for Cambridge Analytica and has witnessed first-hand the power of data analytics and the increasingly sophisticated targeting that such information tools can create.

Another reason to attend this year’s show will be to take a glimpse into the power of quantum computing. A global leader in this space, Vancouver-based D-Wave Systems is writing the book on this frontier technology that may one day introduce dramatically more powerful computing systems. Dan Cohrs, CFO at D-Wave, will walk attendees through quantum computers and how they’re poised to fundamentally change information technology and the pace at which innovation can happen.

For those interested in understanding blockchain and how it will transform money, finance and the business world in general, internationally recognized thought-leader Alex Tapscott will be a must see.

The CSE will also be on stage during this year’s show. On Wednesday, September 19th, be sure to check out a presentation by CEO of the CSE, Richard Carleton, on the innovative tokenized securities program being launched by the CSE.

Extraordinary Future 2017 - Blockchain

Thought-Provoking Topics

It’s not just the dynamic speakers themselves that are also a big draw to the show, but also the lively discussion around the bold ideas set to innovate the world in which we live.

Undoubtedly, one of the biggest technology talking points will be blockchain. In a relatively short amount of time, the proposed uses for this technology have expanded well beyond bitcoin and this year’s show will highlight the diversity of use cases for blockchain in the securities marketplaces, for intellectual property – including in the music industry, as well as cashless payment.

Another big topical theme of this year’s show will be battery technology. The combination of power-hungry devices with the increasing consumer demands for computational power has translated into an explosion in the use of batteries and the need for battery technology to evolve quickly. On the horizon, of course, is the next big wave of battery technology that will be required to support electric vehicles and complex energy storage solutions.

Finally, the ever-popular and constantly evolving healthcare space will be up for discussion at Extraordinary Future. The conversation will focus on mental health and longevity and the technology required to extend both the quantity and quality of life. Cannabis will also be in the spotlight. Technological advancements in delivery systems offer new ways for the medicinal benefits of cannabis to be administered.

Extraordinary Future 2017 - Augmented Reality

Extraordinary Exhibitors

As with last year’s Extraordinary Future, this year’s show features a mix between innovative private and publicly listed companies working across diverse sectors. The Canadian Securities Exchange will also be well represented on the show floor, with at least five CSE-listed companies scheduled to exhibit. The CSE team will also be on hand to answer questions and meet with investors and entrepreneurs.

In addition to companies working directly in these frontier industries, there will an ecosystem of service providers who will also be present. Some of the notable firms in attendance include media organizations such as BNN Bloomberg, BTV, Smallcap Power and more.

Innovation-Hungry Investors

Another reason the CSE is looking forward to Extraordinary Future 2018 is the opportunity to connect with the Canadian investor community. Both retail and institutional investors will be on hand, so companies can pitch deals and arrange for meetings on site in the ‘deal rooms’ section. As part of this year’s show there will also be a startup competition to recognize emerging tech talent.

New Edition of the Public Entrepreneur Magazine

Finally, the special Extraordinary Future issue of the CSE’s magazine, Public Entrepreneur, will also be launched and ready for this year’s show. Public Entrepreneur rolled out in 2017 as a successor to the CSE Quarterly magazine to provide a voice and platform for entrepreneurs in public markets. The upcoming #XF2018 edition will offer up a compelling read so be sure to register here to receive your copy when it goes live.

Vancouver continues to play host to a rich and diverse ecosystem of innovation. As a founding sponsor of Extraordinary Future, not only is the CSE excited to help bring the next wave of technologies into focus, but the CSE is equally proud to support and celebrate Canadian innovation, entrepreneurship and the ability of Canadian capital markets to foster bold ideas.

Are You Protected Against Cyber Security Attacks?

No one thinks it’s going to be them. Until it is.

According to the movies, cybercriminals operate out of abandoned warehouses, target carefully selected conglomerates and use things like “worms” and “keys” to gain access. The reality, however, is that cybercriminals, using scattergun techniques like phishing, are not out for world domination but rather a more familiar motive: money.

In 2016, 24% of breaches targeted financial organizations, 15% healthcare, 12% public sector entities and 15% targeted retail and accommodations*. Whether it’s design plans, medical records or good, old-fashioned payment card details—someone, somewhere will see it as their meal ticket.

Organizations need to build a strong security posture by implementing strategies that address internal and external threats across the entire chain. It is critical to start from the premise that systems will be breached. This perspective enhances the effectiveness of decision making related to preventing, mitigating and recovering from a breach.

Another recent development makes this a pressing imperative. Canada’s new Digital Privacy Act has introduced mandatory breach notification.  In 2017organizations will be required to notify the Office of the Privacy Commissioner, as well as the individuals affected, if the organization experiences the loss or theft of personal identifiable information that puts these people at “real risk of significant harm.” Failing to do so could result in fines of up to $100,000 per offence. This comes as part The Digital Privacy Act (formerly referred to as Bill S-4) that was put into effect in June 2015.

 

On January 19, 2017, the Canadian Securities Administrators (CSA) published Multilateral Staff Notice 11-332, stating that they expect issuers to provide risk disclosure that is as detailed and entity specific as possible, should they determine that a cyber security risk is a material risk. In order to determine materiality, the cyber security incident requires analyzing and the probability of a breach occurring and the anticipated magnitude of its effect needs to be determined. The CSA expects issuers to disclose specific risks, rather than generic risks common to all issuers, and they expect issuers to tailor their disclosure of cyber security risks to the particular circumstance. Underestimating risks leaves enterprises highly vulnerable. Poor security can lead to painful, even catastrophic, financial and reputational losses. Moreover, data breaches and other security incidents put not just individual companies, but entire supply chains, at risk. The following are three steps to build a robust security posture that will support the goals and resilience of your organization, and assist you in determining your cyber security risk.

  1. Conduct a health check of your organization’s cyber security maturity.

A health check is an assessment of an organization’s controls, security risks and threats, to define its current security posture and highlight gaps.

The health check assesses current risks to your industry and business and evaluates the strengths and weaknesses of your organization’s existing security controls.

The health check determines the impact a breach could have on your organization: operations, productivity, information assets, infrastructure, reputation, materiality of the cyber security risks and brand.

  1. Develop a clear security roadmap.

The health check will guide an organization by providing a clear map of priority risks and practical direction regarding where to most effectively focus cyber security budget and resources.

  1. Test your organization’s vulnerability to cyber-attack.

It’s essential to supplement planning with robust testing to determine your organization’s vulnerability to cyber breaches. Intellectual property, personal information, plant systems, computer servers, and mobile devices, could all be targets for attacks.

Seek objective, trusted third party cyber security expertise to assess potential weaknesses through vulnerability assessments and penetration testing of your internal and external networks and applications.

Without adequate protection, cyber security threats can put your organizations’ operations, reputation – even its existence – at risk. Vigilant assessment, planning and testing are critical to protect the bottom line.

For more information on how you can better protect your business from cyber-attacks, contact:

Danny Timmins, CISSP, National Cyber Security Leader T: 905.607.9777E: danny.timmins@mnp.ca

About MNP

MNP is a leading national accounting, tax and business consulting firm in Canada. We proudly serve and respond to the needs of our clients in the public, private and not-for-profit sectors. Through partner-led engagements, we provide a collaborative, cost-effective approach to doing business and personalized strategies to help organizations succeed across the country and around the world.

This story was written by MNP  and featured in Service Providers magazine.

 

 

All Research is Paid For

Since 2003, Fundamental Research Corp, has covered over 280 public, and 120 private companies under an issuer paid model.

It is our belief that research has always been ultimately issuer paid.  What we mean by this is that research is a cost center for brokerage firms.  While trading commissions the research generates contributes to the cost, by and large, many firms make the bulk of their money collecting fees from issuers doing financings, and part of these fees pay for research.

If an analyst has a negative rating, or target price on a company below what a firm is raising money at, the money does not get raised and the firm collects no fees.

We believe that by charging issuers directly for coverage, the transaction is more transparent, and collecting the fee upfront, allows the analyst to be independent.

Traditional models of research are becoming even more difficult since the introduction of MIFID II in Europe.  The impact of this is that institutional investors must now pay hard dollars for research as opposed to getting it for free in exchange for placing traders with the research provider.  The exception to this issuer paid research.

The impact of the above is that smaller cap firms generally do not get coverage, and things are only going to get worse.  Even when they do get coverage, the number of investors who will have access to the report is limited to the brokerage firm’s clients.

Academic studies have shown that research is the best way to get information about a company to investors.

Fundamental Research Corp solves the problems mentioned above by directly charging issuers a fee for coverage, and getting that research into as many investors’ hands as possible through our global distribution network.  To learn more about how coverage will benefit your firm, visit us at www.researchfrc.com.

This story was written by Brian Tang and featured in Service Providers magazine.

Harnessing Social Media to Reach Retail Investors

As many market participants are aware, the methods in which effective investor relations campaigns are conducted are constantly changing. For years, the assumption was that all a company needed was a phone bank with a lead list of investor phone numbers and a recent press release or corporate update to catch the attention of potential investors and pique their interest. In today’s digital world, the smile-and-dial approach of yesteryear is antiquated and is now regarded as ineffective and inefficient.

In the current investment landscape, retail investors and institutional investors alike spend a sizeable portion of their day online, just like anyone else. They may open their Facebook page first thing in the morning for news, or check their Twitter feed at lunch for updates. With our  smartphones and connected devices within arm’s’ reach at all times, these technologies have gone further than changing social interactions, and have even begun to influence the way investors uncover investment opportunities.

So, if a large portion of potential investors are using social media platforms to find news and connect with people, why not harness the power of social media to connect with potential investors and provide company news or updates?

It may not surprise you that retail investors’ trading decisions are influenced by social media. What is surprising however, is that “80% of institutional investors use social media as part of their regular work flow, and approximately 30% of these investors say information obtained through social media has directly influenced an investment recommendation or decision,” according to a recent study from Greenwich Associates.

Today, investment decisions are made because an investor has received multiple pieces of information from a variety of sources that they know and trust. As retail investors make more and more investment decisions on their own, without the assistance of an advisor, there has been a growing demand for online communities and crowdsourced investment insights where they can have open discussions about various investments with fellow traders.

While there are handfuls of investor forums out there, social media channels like Facebook, Twitter, and LinkedIn still reign supreme when it comes to targeting and reach. The ability to target followers of similar/competing companies coupled with the unrivalled user bases that these platforms possess make them ideal weapons for any investor relations warchest.

Modern investor relations campaigns require bidirectional communication, and that’s what makes these social media platforms even more useful. Not only can you share information to existing and potential investors, but you can also glean information from the very same people with polls and more. Your IR efforts should constantly be adapting to the ways that investors are gathering their information, and social media is no exception. Be sure to consult an expert though, as both IIROC and the SEC have complex rules governing such communications.

This story was written by Viride Investor Relations  and featured in Service Providers magazine.

Interview with Mehran Ehsan, President & CEO, Permex Petroleum Corporation

Earlier this month, Peter Murray of Kiyoi Communications, sat down with President and CEO of Permex Petroleum Corp. (CSE:OIL), Mehran Ehsan, to discuss the dynamics of the oil markets; how Permex has navigated growing in a challenging environment and where he sees Permex’s opportunities to continued growth.

Peter Murray (PM)  We’re going to discuss a range of topics, including the state of North American oil markets and how to make money in the current environment.  But let’s begin by having you explain who Permex Petroleum is and the company’s strategy for making the most of opportunities in your industry.  What makes Permex different?

Mehran Ehsan (ME) Permex Petroleum is a uniquely positioned junior oil and gas company with assets and operations across the Permian Basin of West Texas, and the Delaware sub-basin of southeast New Mexico.  We own and operate on state, federal and private land.

The unique value proposition that Permex offers is a reflection of three main factors.

Number one is the timing of our acquisitions.  The company began acquiring assets in one of the worst cycles in history.  During the downturn of the past three years Permex picked up a hawkish position by targeting companies with quite a bit of leverage.  Typically, we were purchasing assets at 10 cents to 20 cents on the dollar.

The second aspect that makes us unique is geography and geology.  As for location, we are in the Permian, and the Permian is the most superior basin in the world.  Most of the investment made by the oil industry during the downcycle was in the Permian, and Permex has been in the Permian since we began.  From a geology standpoint, the best-producing formations in the Permian Basin are the Bone Springs, the Wolfcamps, and the San Andres.  Having these formations within your reservoir is key to succeeding in this region.  Permex has all three of these within its various properties.

The final thing that makes Permex unique, and ahead of our competition in the junior space, is our structure.  Every entrepreneur and CEO thinks they have a good structure, and they quite well might.  With ours, we have 35 million shares outstanding, we have absolutely no debt, and I think we are truly undervalued given where we’re headed.

(PM) How did you develop your insight and strategy for the company?  Was it a single member of the team who had this vision, or was it more of a group decision?

(ME) The board and executive team have over 240 years of combined experience in the oil and gas sector.  Some of us have been through multiple cycles and we’ve seen big peaks and valleys.  And with each valley we’ve witnessed devastation within the industry, but on the flipside is opportunity.  However, these opportunities do not come every year.  They only come every eight years or every 10 years.  For Permex, the timing has been excellent to take advantage of market conditions.  Everyone in the company sees it.

(PM) Can you give us an example of a deal that you’ve done and how it reflects that approach of trying to take advantage of conditions within the industry?

(ME) Let’s look at our most recent acquisition.  We took an approximately 48% working interest in the ODC and Taylor unit in Gaines County, West Texas.  The other main partner on the field is Occidental Petroleum.  What we ended up paying for this asset was about US$1.9 million.  The field is already in production.

To illustrate the value we were able to add, you essentially divide the price paid for the total field by the amount of production you get, and this yields a number called “per flowing barrel.”  We ended up paying $11,000 to $15,000 per flowing barrel.  To put that in context, the market right now is around $45,000.

Currently in our area, you see acreage going anywhere from $500 to as high as $10,000 per acre, yet we paid $500 to $700 per acre.  That is another testament to us entering the market during a downcycle and buying it at a discount.

(PM) That seems an obvious strategy – buy low and sell high.  Why don’t lots of other entities do what Permex does?

(ME) Actually, I think quite a few companies do use a similar approach.  You don’t have to look far for a good example.  Ring Energy started in 2002 and has just grown and grown.  In the last downturn it expanded substantially by taking advantage of the cycle.

The main reason we don’t see this happening all the time is that it is not simply a matter of buying low and selling high – there is more to it.  You can buy low in the wrong environment and the wrong location and it doesn’t matter if the market comes back up because you won’t benefit from it.

To give you an example, in the Canadian environment right now there is too much regulation, too much red tape, and taxes are too high.

(PM) Can you give us some insight into the different regional oil markets in North America?  What would be your Top 3 jurisdictions and are there some areas or types of plays you would avoid?

(ME) First of all, we don’t do anything offshore.  Looking at opportunities onshore, we are quite biased toward the Permian Basin, and I’ll give you valid reasons why we think that way.  Out of 22 billion barrels of proven reserves in the United States, 9.8 billion belong to the Permian Basin, or over 44%.  Looking at US production, 3.2 million barrels a day is produced in the Permian, compared to 10 million to 11 million in the entire US.  That means that around 30% of production in the United States comes from the Permian, which is just a portion of West Texas.

Looking at the number of rigs now actively drilling, which indicates where investment is going, in the Permian it’s 471 rigs, which represents over 42% of rigs in the US, and over 22% of global rigs.  That is why the Permian is our top choice.  This is the gem of the United States, if not North America.  There is nothing comparable to it.  In fact, the Ghawar Field in Saudi Arabia would be the first comparison that comes to mind, and some believe this is a better field even than that.

The next one we would look at is the Scoop/Stack play of Oklahoma.  There has been some development there, some horizontal drilling within those formations and basins and they are quite lucrative.

And lastly, we would consider the Bakken.  The Bakken has become more efficient, although the grade of oil is a little different.  It is not as high a grade, so refining can be an issue at times.  That would be an area we would review.

Unfortunately, there is no Canadian play in our Top 3, and the reason is geopolitics, red tape, and not enough infrastructure to take your product to market.  As a result, junior companies cannot compete with juniors operating in the Permian.  The only ones in Canada that will continue to be successful are mid-caps and large-caps which monopolize this market and take advantage of what the government puts out there to block juniors.

Canada has abundant reserves in the ground and we would love to tap into them to benefit the Canadian economy as well as Permex and our shareholders.  But until some of the governmental agencies change and we begin to see some federal and provincial agreements, we won’t be willing to move into the domestic market.  As a junior we just cannot get involved, unfortunately, because at the end of the day it is the bottom line that matters for shareholders.

(PM) What is the medium- to long-term outlook for Permex?  And how large can the company ultimately become?

(ME) Our focus right now is on developing our fields.  Scaling up production, in other words.

The second goal will be continuing to build reserves by adding landholdings and leaseholds.  In the medium term, we believe the company can reach a market capitalization far higher than where we currently stand with an appropriate injection of capital into various sectors within our development plays.

The long-term goal is for Permex to rank among midsize producers, or perhaps even alongside the big boys.  There are many companies that six or seven years ago started on the same path and followed the same formation, and they are now reaching that $800-900 million market cap.  Ultimately, either a large-cap takes us out, or we become one ourselves.

(PM) You mentioned earlier the depth of experience on the Permex team.  Are there any new lessons you have learned since Permex was established?

(ME) One of the main things I would point out is what we think is the Achilles heel for many oil companies, which is not having the ability to be flexible during a downcycle.  Many companies fail not because their operations are bad or they are too leveraged, but because they cannot quickly adapt to a lower-price environment.  Being fluid and flexible is the key to surviving in this industry.  In our opinion, you need to have a lean company and a low burn rate to be able to weather some of these storms, and if you don’t then there are real issues.

(PM) Do you have any advice for entrepreneurs who are looking at the oil market – or any type of business for that matter – and trying to determine the best way to move forward on an opportunity that they have perceived?

(ME) I consider myself a contrarian, so I do not have a herd mentality whatsoever and I believe that if an entrepreneur wants to get into any sector they have to have a unique value proposition and showcase why their project and their company is ahead of the curve.  This is particularly true in the oil industry, as our deliverables are much closer at hand than in many other businesses.  Oil companies really need to be on top of their game in terms of defining and demonstrating a unique value proposition.

Marketing your Private Placement online

Online investor marketing isn’t just about supporting your stock price – successful companies are now building specific marketing plans for each Private Placement raise. As you approach a financing, consider these questions:

How much of my targeted raise amount will come from my “President’s List” and dealer syndicate? If you are confident in hitting the full raise amount, that is great news, but even then, think about your share distribution. When these shares come free trading, what type of pricing support will they see in the market? In addition to bringing in dollars and expanding your shareholder base, marketing your raise gives the extra bonus of greater overall market awareness and branding. Every investor in your private placement can become an active brand evangelist in social media, investor clubs, and online message boards.

Ask yourself – is it time to expand our shareholder base? Sure, the retail investor can be reactionary, emotional, and irrational, but support in the retail market is usually the only bridge to get you from tightly held strategic shareholders to institutional interest. For early stage public companies, the retail investor is critical. Decide if there should be a retail component in your raise, and if so start building that marketing plan. Remember that attracting investor interest isn’t just about capturing their direct investment today – it is about adding their contact information to your database, and about getting them to start following your company, both online and on social media.

Don’t forget – Financings are major milestones – do not miss the opportunity to leverage them as news, especially while the raise is “live”.

The mandatory press releases announcing the opening and closing of your raise do not count as marketing!

  • How do you find new direct investors? Look to your database first – this includes your email lists, your website traffic, and your social media. Second, itemize the different marketing, newsletter writers and industry coverage touchpoints that you already have. Get them your financing details, and encourage them to distribute the news. Don’t be shy – your company is moving forward, you are taking direct investment, and it needn’t be only Capital Markets insiders “in the know”.
  • How will exemptions affect your marketing? While the “Accredited Investor” exemption is the most commonly used, the reality is that only 3% of Canadians qualify as Accredited. Even within our online community, which is purely investment based, only 16% self-identify as Accredited.
  • How do you expand your reach? One option is to include the Investment Dealer exemption, which allows anyone deemed suitable by an IIROC Dealer to be qualified. If your marketing attracts investors who don’t already have a broker, this exemption can lead to new brokerage accounts, which can be a way to “pay back” your supporters on the broker side.
  • Another intriguing option is the Offering Memorandum, which allows self-directed, non-Accredited investors to qualify. That means you can cast your marketing net even wider, as literally every investor that can afford the investment within the appropriate jurisdiction becomes your target audience.
  • Crowdfunding exemptions are designed to allow for maximum marketing reach, but have very low individual investment limits. Crowdfunding exemptions are best suited for early stage, private company funding, not multi-million dollar public company raises. Based on CEO feedback, there is value to the crowdfunding exemption, but it is more about broader exposure than raising hard dollars. If you want to leverage both the traditional exemptions and the reach of the internet, consider an online deal portal that specializes in pubco private placements.

Every financing is a valuable marketing opportunity to create news flow and to get on investors’ radars. Decide what your investor targets are, make a plan, and leverage every distribution outlet available to you.

ICO’s – The New Crowdfunding Platform: Caution, Speedbump Ahead.

As reported by the Globe and Mail on October 23 2017, the Ontario Securities Commission (“OSC”) has approved an Initial Coin Offering (“ICO”), to TokenFunder, representing its first foray into the land of crypto crowdfunding.  Responding to the markets appetite for ICO based financing, and the inherent need to develop a regulatory framework within which they will operate, the Canadian Securities Administrators has instituted a twelve month exemption to TokenFunder from the requirement to register as a securities dealer.

This funding platform is not without risk.  The underlying cryptocurrencies issued in conjunction with ICO’s may not be classified as securities. They do not convey ownership rights of a company, as is the case with the more traditional common shares, warrants, or other equity instruments.  Instead, they tend to carry with them access rights to a product or platform which has been or will be developed by the issuing company.  There is no guarantee the initiative(s) will ever be completed or commercially viable.  Furthermore, ICO’s remain in regulatory purgatory while governments, securities commissions and exchanges struggle to understand the ICO model and how best to fairly regulate it.

When a company undertakes to complete an ICO, it creates its own cryptocurrency and sells a portion of it under the terms of the ICO.  In a perfect situation, the company builds its platform, is commercially accepted, and demand for their digital currency surges, resulting in an appreciation of value for those holding their digital currency.

Cryptocurrencies are designed from the start to share some fundamental characteristics of precious metals.  After their initial issuance, the volume of additional cryptocurrency issued in a given series is structured to decline over time, creating what amounts to engineered scarcity.  This, coupled with potential success of the underlying platform which forms the basis of the ICO, can generate exponential growth in value of the cryptocurrency itself.

Perhaps the best known cryptocurrency, Bitcoin, introduced January 3, 2009 demonstrates the pinnacle to which all ICO’s strive to achieve. As of November 7, 2017, each Bitcoin in circulation is valued at CAD$9,510 each, benefiting from a wildly successful platform, and engineered scarcity, coupled with worldwide acceptance as a conveyance and store of value.  It’s important to note, however, that Bitcoin was first on the scene in 2009, prior to the explosion of the ICO crowdfunding demand.  While Ontario has just now approved its first one, the number of ICO’s worldwide has exploded, showing no signs of slowing any time soon.   With so many cryptocurrencies and platforms emerging, it is uncertain what the impact on individual investors will be as engineered scarcity, one of the fundamental pillars of the cryptocurrency model, is challenged by an explosion of digital currency entrants.

Bitcoin now finds itself facing challenges as its own success has sparked scrutiny.  More and more, digital currencies are utilized as the monetary conveyance of choice for criminal activity.  Many countries have begun the process of formulating policy with respect to cryptocurrencies and ICO’s, with a few restricting or banning outright certain cryptocurrency or ICO activity. As these digital currencies exist outside the influence of governmental monetary policy with central banks unable to manage what may soon prove to be a significant element of the money supply, regulatory concern continues to mount.  Furthermore, with significant and rapid appreciation in value, comes the question of unsustainable demand, further strengthening the mandate of the regulators.

As the OSC blazes its path towards regulating ICO’s in Ontario, investors find themselves faced with opportunity and a degree of uncertainty as the nature and extent of these regulations are as yet unknown.

This story was written by Robert Suttie, Vice President of Marrelli Support Services Inc. and featured in Service Providers magazine.

Learn more about Marrelli at http://www.marrellisupport.ca// and on the CSE website at http://thecse.com/en/services/services-for-listed-companies/marrelli-support-services-inc

FINANCIAL IMPACT OF A REVERSE TAKEOVER WITH A SHELL CORPORATION

One of the popular ways for private companies to obtain a listing status on the Canadian Stock Exchange (“CSE”) is through a reverse takeover (“RTO”) with an existing listed entity. The most common version of an RTO is when a private operating entity merges with a listed (more or less) shell corporation, effected by way of exchange of equity interests, which typically results in owners of the private entity gaining control of the combined entity after the transaction.

Understanding how the financial records of the resulting combined entity shape up is an essential factor for the leadership of the private entity to gauge the breadth of such a transaction. It is however often overlooked amidst other regulatory requirements. The International Financial Reporting Standards (“IFRS”) and its interpretation, provides specific guidance around this area, which is the subject of this piece.

Despite the public shell corporation issuing shares, from an accounting perspective these transactions are considered to be capital transactions of the private entity looking to obtain the listing status of the non-operating shell corporation. They are therefore equivalent to the issuance of shares by the private entity to acquire the net assets of the public shell corporation. Unlike a straight acquisition achieved through exchange of equity interests, where the accounting records are a continuation of the entity issuing shares, in an RTO, the historical financial records of the private entity are retained. The RTO is accomplished by recognizing, in the financial statements of the private entity, the net assets of the publicly listed shell corporation in return for shares “deemed” to be issued by the private entity to obtain a control position in the combined entity. The equity structure however, (that is, the number and the type of equity instruments issued) of the combined entity, reflects the equity structure of the publicly listed shell corporation, including the equity instruments exchanged in the RTO.

The deemed shares issued by the private entity, which is the consideration it has paid for the acquisition of the public shell corporation, are recognized at fair value and any difference between the fair value of these deemed shares and the fair value of the acquired net assets of the public shell corporation, represents a cost to the private entity. The Interpretation Committee of the IFRS points out that, for the private entity, this difference in fair values is considered to be a payment for service of a stock exchange listing for its shares, and therefore should be expensed through its profit or loss. This is in contrast to the usual treatment of cost of issuing capital, which reduces the value of the capital raised. The leadership of the private entity therefore needs to understand this and evaluate if this is an acceptable impact on their financial reporting.

Although this is a simplistic introduction of what to expect if you choose to obtain a listing on a stock exchange by way of an RTO with a listed shell corporation, accounting for such acquisitions can be quite complex. This could include determining the fair value of the consideration for the transaction (i.e. the value of the deemed shares issued by the private entity), the fair value of the net assets of the public shell corporation, non-controlling interest considerations, earnings per share calculations, to name just a few. The key thought is to ensure to involve your accounting advisors, amid other consultants, at the right time in the whole process so you have a complete picture of the impact of your desired transaction.

This story was featured in Service Providers magazine.

Learn more about Avisar at http://avisar.ca/ and on the CSE website at http://thecse.com/en/services/services-for-listed-companies/avisar.

Canntab Therapeutics: Merging medical cannabis with pharmaceutical expertise

The cannabis market is full of potential and creativity, with companies introducing new and innovative products every day. Dispensaries have gone way beyond smokable marijuana, offering customers everything from cannabis-infused edibles like beer and chocolate to personal care products like lotion and eye creams.

But the cannabis market isn’t all fun and games. Canntab Therapeutics Ltd. (CSE:PILL) is looking to fill a need in the pharmaceutical space.

Based in Ontario, the company was founded by pharmaceutical industry professionals. Chief Executive Officer Jeff Renwick was the former CEO of Orbus Pharma Inc., a generic drug developer and manufacturer. Prior to that, he was at Indukern Chemie AG, a Swiss pharmaceutical company.

Although once a private company, Canntab merged with Telferscot Resources on April 20, 2017 — a date synonymous with marijuana. Exactly one year later, the company went public on the unofficial pot holiday.

The company is presumably the first to offer medical marijuana in pill form.

The technology behind the pill was licensed from a predecessor firm. Since then, Canntab has filed seven patents for its two products. Approval from Health Canada to proceed with third-party clinical trials is in the works.

When a patient smokes marijuana or eats cannabis-infused edibles, it can be difficult to measure exactly how much of the medicinal elements are being delivered.

Chief Financial Officer Richard Goldstein also points to the potential danger of cannabis products being created by those without a pharmaceutical background, without GMP, or “Good Manufacturing Practices,” in place.

“A lot of it is being made in home kitchens and home basements. They’re not being made in the GMP environment. And yet, the marketplace continues to eat this stuff up. It’s quite scary at a level,” says Goldstein. He recalled a story where the tablets were so poorly pressed that they weren’t able to be dissolved in a patient’s system before exiting.

In contrast, the company’s extended-release tablets offer a consistent, stable dose each time and aren’t susceptible to spoiling and converting into other cannabinoid elements when exposed to certain environments like an oil-filled gel capsule would be.

“In true pharma, the only time you use a capsule to deliver medication is when you can’t have a tablet for that medication. If you can have a tablet, that is always the first choice,” says Renwick.

The tablets are intended to treat a variety of disorders, including Post-Traumatic Stress Disorder and arthritis. They can also act as a pain management and appetite loss drug for patients undergoing cancer treatments.

The pill delivery mechanism may also be the first step in reducing the stigma of marijuana by removing the smoking aspect.

Renwick recently had a conversation with a landlord who was spending hours in court after tenants complained about neighbors smoking marijuana, some of whom were using it for legal, medicinal purposes. The pill can be a smokeless alternative in areas where smoking isn’t allowed.

Canntab believes the pill alternative will also appeal to senior citizens who take multiple pills per day, especially in assisted living facilities where smoking may not be allowed.

“They’re not going to smoke. They’re not going to eat gummy bears, but they’ll take a pill if it makes them sleep better,” says Renwick.

The company does have a sleeping pill in the works, although clinical trials will still need to be performed.

And a future product line may include cannabis tablets intended to specifically treat sleep and social anxiety disorders.

While the legal landscape is always evolving from place to place, the company has come to agreements to expand outside of Canada.

Canntab is working on import and export permits, with agreements already in place to send tablets to Australia and Germany. Deals with Poland, Spain, and Greece are also being discussed.

Moving into the U.S. market is challenging. Recreational marijuana use is already legal in nine states, including California, Washington, Oregon and Nevada. Medicinal marijuana is legal in a total of 29 states, including those West Coast states as well as East Coast states like New York and Delaware. But on the federal level, cannabis is still illegal.

“Ultimately, we want to get something going in the US, preferably in California,” says Renwick.

The company has said it has a “soft plan” to get there by perhaps 2019. A lawyer is looking into licensing in California on its behalf.

A 2017 Gallup poll found that 64% of Americans support the legalization of marijuana.

Looking to the future, Canntab’s CFO is confident that the company is in good financial shape.

Goldstein notes that the company’s immediate cash needs have been fulfilled after going public.

“The good news is that we have lots of money to do what we want to do in the short term and then as opportunities present themselves, we’ll seek capital if necessary,” says Goldstein.

This story was featured in The Public Entrepreneur magazine.

Learn more about Canntab Therapeutics Limited at http://canntab.ca/ and on the CSE website at http://thecse.com/en/listings/life-sciences/canntab-therapeutics-limited.

Interview with Richard Carleton First Half Review — June 2018

Earlier this month, CEO of the Canadian Securities Exchange, Richard Carleton, sat down with Peter Murray of Kiyoi Communications to discuss a number of topics related to the progress of the CSE in 2018 so far, the investment landscape for growth-stage companies and what’s on the horizon for the CSE heading into the second half of the year.

Scroll down to read the full transcript of this interview. For ease of navigation, a list of hyperlinked topics is included below.

  1. First Half Performance in 2018
  2. Blockchain-based Clearing and Settlement – Updates
  3. Cannabis Sector Perspectives
  4. Growing the CSE Brand
  5. Keeping Pace with Expansion
  6. Trading Enhancements & Liquidity Growth
  7. Share Structures and US Issuers
  8. What’s Next for 2018

First Half Performance in 2018

PM: Performance at the CSE as measured by standard metrics – listings, financings, trading volume – was strong yet again in the first half of 2018.  Can you recap some of the key numbers for us?  And were there any trends that you feel really stood out?

RC: By every metric, we are ahead of 2017’s record pace.  Whether we measure our performance by trading volume, value traded, number of trades, or financings conducted by companies listed on the Canadian Securities Exchange, the numbers are considerably ahead of where we were at this time last year.

I am particularly pleased that on a 12-month trailing basis, companies have raised almost $2 billion via the facilities of the CSE, either through an IPO or as a secondary offering once the issuer was listed with us.

And with every additional listing, we reach a new benchmark in terms of the number of securities trading on the exchange.  We are above 380 securities at this point, and about 360 companies.

I’d also note that this performance comes at a time when the industry in general is not setting new records.  Measures of liquidity confirm that companies listed on the Canadian Securities Exchange trade at better levels than their counterparts on other exchanges in Canada.

When assessing liquidity, we use a measure of share value traded versus market capitalization.  In Canada’s large cap space, approximately 5% of a company’s market capitalization by value will turn over in a typical month.  In the junior markets, that number tends to be a little higher.

On the Canadian Securities Exchange, we regularly see our companies turn over at almost twice that rate.  And in January 2018, when there was an enormous amount of market activity, principally in the blockchain and cannabis sectors, our average turnover was almost 35% of a company’s market capitalization.

In previous interviews, I have talked about some of the challenges and hurdles the exchange has overcome during the last several years.  There was, for some time, a persistent view in investment banking and trading circles that we might not have the liquidity which some of the other trading centres did.  But the statistics now demonstrate that Canadian Securities Exchange issuers are among the most liquid traded instruments in Canada.
Back to top

Blockchain-based Clearing and Settlement – Updates

PM: In February, the CSE announced plans to launch a blockchain-based clearing and settlement facility.  That was near the height of the blockchain mania and triggered a tremendous amount of discussion within the securities industry.  What can you tell us about progress since the announcement?

RC: We’ve been working a lot with dealers and other entities involved in providing services to the securities processing side of the business.  And we have also been working with companies who would like to issue tokenized securities.  We’d like to be in a position to offer companies who are interested in raising capital by way of a tokenized security a place not only where they can list – because if the instrument is a security we can list it tomorrow, as a securities exchange – but to extend the full power of blockchain technology to the clearing and settlement process.  By doing so, we can eliminate a lot of cost and friction that exists with the current processes provided by the Canadian Depository for Securities.

One of the principal issues companies deal with is the cost of processing dividend or royalty payments to their shareholders.  The cost of doing this can be prohibitive to smaller companies, or to companies that wish to have a payment stream to shareholders more frequent than quarterly or semi-annual.

The other thing is that the current system is extremely inefficient when it comes to corporate governance.  Shareholder documents often go through multiple hands before they get from the company issuing the document to the beneficial owner of shares.  It goes to the transfer agent, to the clearing and settlement organization, and to the broker before it finally reaches the investor.  What we would like to do is eliminate the middlemen who are not adding value and enable companies to seamlessly communicate with their shareholders.

Take corporate governance as an example.  Proxy voting using the blockchain would be secure and inexpensive.  And going back to my previous example, it would enable companies to design securities where there are regular streams of income from different types of assets that move into the hands of shareholders.

Since we announced our plans in February, we’ve had a large number of people spend time with us from different industries.  For example, royalty streams are very common private equity instruments in the mining industry but less so on the public company side.  Some groups would like to be able to use the power of our system to issue new types of securities to public investors, instead of just to a small group of extremely well-funded private equity participants, as is currently the case.

We are in the process of working through the system we will be offering, though we’re slightly behind schedule from a technology perspective.  We had a significant new release of trading system technology which consumed a little more of our resources than I had hoped.  But I will say that the reception we have received from the industry – be it the investment banking side, the trading side, or the back-office side – is extraordinarily enthusiastic and supportive.
Back to top

Cannabis Sector Perspectives

PM: The CSE continues to attract new issuers doing business in the US cannabis market.  What are your latest observations on the sector, and can we anticipate more listings to come?

RC: It does seem that a lot of people who were invested in Canadian MMPR (Marihuana for Medical Purposes Regulations) licensees over the last couple of years have shifted their investment focus to companies with exposure to the cannabis business in the United States.  Quite a few large US-based companies have listed on the exchange recently, and more such companies are currently in the application pipeline.  And, clearly, they are being funded by Canadian and US investors.  Pre-IPO financings are heavily subscribed, and often oversubscribed, so we are far from being at the end of investor appetite for the cannabis space generally, and companies with a US focus specifically.

We are heartened by some of the regulatory developments in the United States.  It appears that there may well be a federal bill that provides additional comfort to companies operating within the legal framework at the state level, such that they will not be subject to federal prosecution, which would obviously benefit the entire sector.  We find ourselves in a situation where the Canadian public markets are funding the rise of a new and potentially quite large and interesting industry in the United States, and it really shows no signs of slowing.
Back to top

Growing the CSE Brand

PM: As noted earlier, demand by entrepreneurs to list companies on the CSE remains strong.  Your fee structure and streamlined listing process are a big reason why, and it doesn’t hurt that the exchange works hard to support its issuers with outreach events, visits overseas, and recently the launch of a new magazine, Public Entrepreneur.  Can you talk about why you devote so many resources to these efforts, and the feedback you receive from issuers and investors?

RC: I’ve commented before that after taking this job I learned that the brand of an exchange – brand awareness and brand identity – is extraordinarily important.  In order to reach the level of acceptance we now enjoy, it’s been necessary to assure people across every part of the industry – from issuers to dealers, traders, investment bankers, and, of course, investors – that we are a well-regulated exchange, and that we are thought-leaders committed to supporting the efforts of our issuer companies to achieve the kind of investor access and visibility they might potentially get with other marketplaces.  And instead of just comparing ourselves to other markets, we wanted to do a superior job so that investors interested in the types of issuers we have could get efficient access to information about them.

That’s really what has directed our efforts – awareness efforts with different brokers and in different marketplaces to provide our issuers with better access to capital and to secondary market trading liquidity.  That explains, for example, the work we have done with the OTC Markets Group in the United States, and some of the work we have done internationally with brokers to increase their coverage and visibility of CSE listed companies through their networks.

We are really committed to building our brand and providing everyone with a degree of confidence that we are a responsible, reputable, accessible, fair, and cost-effective source for capital, as well as a provider of robust and cost-effective secondary market liquidity.
Back to top

Keeping Pace with Expansion

PM: The CSE’s Vancouver team just moved into a new office at the beginning of June and you’ve added some more members to the organization, as well.  Tell us about expansion of the exchange on the corporate side and the benefits this has for issuers.

RC: Our focus has really been in two areas: our sales and marketing group as well as in our issuer regulation group.  Let me talk about the latter first.

As noted, the exchange is growing very, very quickly and we continue to receive listing applications at a record rate.  As a result, we have retained a number of additional professionals to help us maintain service levels.

Although some nasty rumours have been spread about our timelines extending, a cool-headed review of the statistics shows that our turnaround time is about the same as it was over the last three to five years.  And I am pleased about that because I can assure you we are handling a significantly higher volume of business these days.

On the sales and marketing side, we are expanding to better promote the exchange within specific markets, particularly Toronto and Vancouver.  We know that we need to have team members charged with the responsibility to meet with the investment banking and dealer communities to further build our core message, which is that we are the best place for companies, especially in the earlier stages of development, to seek public capital.

We’ve invested in that effort with new hires in Vancouver and Toronto and we plan to become even more active in hosting events, showing our thought-leadership, and helping our issuers tell their stories to an ever-broadening audience of investors.
Back to top

Trading Enhancements & Liquidity Growth

PM: Is there anything new on the trading platform front that dealers and professional traders should be aware of?

RC: We just had a new release of our trading system technology, and while there is nothing bold in the features and functionalities, we are constantly refining this service offering by providing different order types that can be used by the various players in the marketplace.  And we do this with a view to maximizing the liquidity that issuer companies enjoy from being on the Canadian Securities Exchange.

What we are seeing with the increase in volume is the arrival of what some call a virtuous liquidity cycle, where, because there is more trading and participation, interest grows from new participants, especially internationally, and that drives more volume.  The old saying in the market that liquidity begets liquidity is something we have definitely been seeing.  The pace we are at now is roughly 10 times where we were just two years ago.  It is magnificent progress that we have managed to make in a relatively short period of time.
Back to top

Share Structures and US Issuers

PM: The listing of subordinated voting shares by MedMen Enterprises and FSD Pharma during the half generated a lot of comment.  Can you walk us through the issues involved and give us some perspective on how to interpret those decisions?

RC: There are two ways of looking at it.  The first is that subordinated voting shares have been a feature of the Canadian public equity markets for a few generations.  And the fact that they are now showing up on the Canadian Securities Exchange is probably as strong an indication of our maturity as any I can cite.

If you go back in Canadian corporate finance history, they were used when there was a founding individual or family that wanted to retain a control position in a company but raise equity from outside investors at the same time.  Really, we have the same dynamic in play with the companies who have listed these subordinated shares.

The second component is that US issuers are essentially required to have a majority of their shares issued outside of the United States in order to not become reporting issuers in the United States, which for a number of cost reasons they would prefer to avoid.  Directors and officers insurance premiums are considerably lower in Canada, legal and civil liability risks are lower, and audit fees are less because in Canada you don’t have Sarbanes-Oxley compliance in addition to your regular public audit.  Regulatory fees are higher in the US, too.

If you can avoid having to become an SEC (US Securities and Exchange Commission) filer, that is a positive thing for a company from a cost perspective.  And if they issue the majority of their shares outside of the country, that is a legitimate way to not be required by the SEC to become a US reporting issuer.

I think it is a structure you are likely to see more of with companies we have looking to list in Canada.

Now, we need to make sure that the holders of those securities have a variety of protections in the event of mergers and acquisitions activity and some other issues, but we are aware of these concerns and are working with securities regulators and the companies on those questions.
Back to top

What’s Next for 2018

PM: The CSE is clearly coming off a very successful first half.  What initiatives are on the go for the balance of 2018 to maintain the momentum?

RC: With assurance, we know we will continue to be listing companies at a fast pace because of the number of applications and conditional approvals we are working on at the moment.  We have more than six months of business in the queue, if you will.

We will continue to work on developing the clearing and settlement system for tokenized securities.  That will be a key focus.  We also expect to welcome our first Israeli companies in the second half of 2018.  I have visited Israel twice in the past six months with a view to tapping into one of the world’s most dynamic start-up cultures and to provide these companies with a very cost-effective means of coming to North America, becoming a reporting issuer, getting a listing on a recognized stock exchange, and also building a shareholder following and profile in the United States by way of a quotation on the US OTC market.

We think that is very powerful, not just for Israeli companies but also for other international issuers looking to access public capital.  For example, we expect to visit Singapore later in the year, and we have also had discussions with companies located in Jamaica, in Colombia, and recently met with a delegation from Barbados on some listing opportunities there.  In summary, we’ll do more of the same, but I would expect to see an increasingly international flavour among our issuer community as we progress further into 2018.
Back to top