A rare proxy battle in the Canadian cannabis market could trigger more activist fights

• MediPharm Labs fended off a rare proxy battle from major shareholder Apollo Technology Capital, which sought to replace six board members and slash executive compensation.

• The fight highlighted shareholder frustration with steep stock losses, high CEO pay and poor governance in the cannabis sector.

• Industry experts say this could mark the start of more activist campaigns as cannabis investors demand accountability and exits.

Shareholders of MediPharm Labs Corp. have quashed a proxy battle waged by an activist investor in a rare showdown in the cannabis industry.

The fight pitted the management team of the Ontario, Canada-based cannabis infused products manufacturer against Apollo Technology Capital, a big investment firm and one of MediPharm’s largest shareholders. Apollo, which owns 3% of MediPharm’s common stock, aimed to replace six board members with its own slate of directors and reject a new executive compensation package.

Activist investors typically use hedge funds to acquire a minority interest in a public company to invoke operational or other material changes to the business. Though fairly common in high stakes clashes in the energy, entertainment and technology sectors, this may be the first of its kind in the cannabis space.

Given the escalating gripes of retail investors, depressed share prices and high executive compensation, expect more proxy battles at cannabis companies, industry sources told Cultivated.

“The conditions are ripe for more activist investing,” said finance expert and cannabis consultant Mitchell Osak, who first sounded the alarm in a March 2024 Substack blog.   

Seeds of change

The cannabis industry, according to Osak, has largely been shielded from activist investors due to stigma and lack of institutional capital, but years of massive shareholder losses, coupled with recent profitability at some companies, positive cash flows, and emerging intellectual property, have changed the script.

“There are many disillusioned retail investors who want the exit liquidity that an activist investor can bring,” said Osak, president of Quanta Consulting Inc. in Toronto.

The widespread “shoddy treatment” of retail investors, underscored by sparse analyst attention, limited media coverage, and a general lack of corporate governance, communications and financial accountability, has also fueled retaliation, Osak said.

“This creates an angry but also apathetic shareholder base who are amenable to an activist investor pitch,” he added.

‘A fiduciary obligation’

Apollo on May 8 announced a plan to nominate six directors and issued a letter to shareholders underlining MediPharm’s 99% share price decline from May 14, 2019 to Dec. 31, 2024.

In subsequent filings and press releases, Apollo listed executive compensation as a main trigger for the proxy fight, highlighting that MediPharm CEO David Pidduck has earned over $5.5 million since taking the top post in April 2022 while losses have eclipsed $58 million.

“When you run a public company, you have a fiduciary obligation to your shareholders, and at the end of the day, you are there to make the share price go up, to give investors a return on their risk capital,” said John Fowler, who was nominated by Apollo for a MediPharm board seat.

Fowler is principal of Blaise Ventures, a business consulting firm in Toronto. He was also the founder and former CEO of The Supreme Cannabis Co. prior to its 2021 sale to Canopy Growth for $435 million Canadian dollars ($346 million USD). 

Supreme tried to acquire MediPharm during Fowler’s tenure, he confirmed. 

Apollo on Monday issued a press release contending the shareholder vote was invalid because MediPharm “illegally included additional materials in its proxy mailing that are expressly prohibited.”

Apollo CEO Regan McGee, who was also sought a board seat, declined interview requests for this story. 

MediPharm responds

In a statement sent to Cultivated, MediPharm said Apollo has misrepresented or “outright fabricated” allegations throughout its campaign.

“We have not dignified most of their falsehoods with a response,” a company spokesperson said via email. The person, who works at an investor relations firm, asked to withhold their name, citing the sensitivity of ongoing discussions between dissident investors and MediPharm.

The cannabis operator posted an online document contesting several Apollo claims, but did not dispute Pidduck’s earnings or net losses under his leadership. In its statement to Cultivated, MediPharm noted some improving trends, including trimming operating losses to $440,000 CAD in the first quarter.

Net losses totaled $387,000 compared to a net loss of $3.6 million in the same period a year ago, according to its financial report. Revenue in the first quarter rose $1 million, or 11% year-over-year, to $10.8 million. 

“CEO compensation has declined every year since 2022, and more than half of it is non-cash, meaning his interests become increasingly aligned with those of shareholders,” Medipharm added.

The company  also confirmed McGee offered to acquire Pidduck’s shares at a “significant premium” and the offer was rejected. Before Pidduck took the helm, Medipharm incurred operating losses of $48.9 million in 2021 and $72.6 million in 2020, according to financial statements.

“They don’t mention any of that in their disclosure,” Medipharm stated.

“Shareholders need to recognize that many activists are just opportunists with no real knowledge of the space. And ultimately, a proxy contest is a very expensive matter and a distraction for management and the board, who should be focused on building value for shareholders.”

Activists at the gate

Though there’s been some isolated examples of shareholders rejecting executive compensation plans and/or pushing leadership changes, full-scale activist showdowns have been non-existent in the marijuana industry.

Deepak Anand, principal of ASDA Consultancy Services in Surrey, British Columbia, expects that to change.

“It’s not a matter of if, but when,” he said. Anand cited numerous factors, including:

• High executive compensation amid company underperformance.

• Operational efficiencies and declining valuations.

• Investors seeking exits, fueled by limited liquidity and IPOs.

• US regulatory clarity, via rescheduling or SAFE Banking.

“Looking ahead, expect more compensation-focused campaigns, board refresh proposals, and eventually, M&A-driven activism as the industry consolidates and institutional capital demands better governance and ROI,” Anand said.  

Investor issues warning 

Mark Merritt, a private investor focused primarily on publicly traded Canadian cannabis companies, expected the proxy battle outcome.

“All these little companies, they tend to be pretty closely held,” he told Cultivated a few days before the final votes were cast on June 13. “It seems to me that would be a whole different hill to climb.”

In this case, MediPharm’s Pidduck entered the year as the company’s largest individual shareholder, controlling 18.3 million shares, according to Yahoo finance and regulatory disclosures.

Board director and cofounder Keith Strachan, who relinquished his role as president at the end of 2024, was a distant second, with a little more than 3 million shares. Prior to the vote, Merritt alerted executives at several of his portfolio companies to monitor this proxy battle, warning they could become an eventual target.

He highlighted voter turn out as a key differentiator in potential activist campaigns.

“It is possible with a really small turnout to steal the thing,” Merritt told Cultivated. “That is something (companies) should be concerned about.”