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Speakeasy Cannabis Club Ltd
Symbol EASY
Shares Issued 103,279,138
Close 2020-05-04 C$ 0.41
Recent Sedar Documents

Speakeasy "consultants" paid $1.45M to raise $2.41M

2020-05-05 21:04 ET - News Release

Dr. Bin Huang reports

SPEAKEASY UPDATES PRIOR PUBLIC DISCLOSURE AND ANNOUNCES APPROVAL OF SETTLEMENT AGREEMENT WITH THE BCSC

Speakeasy Cannabis Club Ltd. has entered into a settlement with the B.C. Securities Commission and has further provided updates and clarifications to certain prior disclosure regarding financing transactions previously publicly disclosed by Speakeasy.

BCSC settlement

Speakeasy is pleased to announce that it has entered into a settlement agreement with staff of the BCSC in connection with certain of the company's historical disclosures. This settlement resolves the BCSC's review of Speakeasy's involvement in the continuing BCSC investigation relating to, among other things, the use of the consultant exemption from prospectus requirements as part of financings conducted by Canadian Securities Exchange-listed companies in British Columbia.

Under the terms of the settlement, the BCSC will not seek any orders against the company, including financial orders. Full details of the settlement, including the settlement agreement, will be available on the BCSC website.

The company's chief executive officer, Dr. Bin Huang, said: "We have co-operated and been fully transparent with the BCSC. We are glad to have made this favourable settlement. We look forward to focusing on accelerating the company's growth."

Speakeasy response to BCSC allegations

In November, 2018, the company became aware that it had been named in a notice of hearing issued by the executive director of the BCSC relating to the BCSC matter. The allegations related to the alleged misuse by Speakeasy of an exemption from the prospectus requirements of B.C. securities laws, which permits bona fide consultants to receive securities from an issuer such as Speakeasy without any prospectus and without imposing any hold periods on those securities upon issuance.

The BCSC alleged that a number of issuers, including Speakeasy, had purported to issue securities in reliance on that exemption to companies or individuals who were not bona fide consultants to the issuers. As such, the BCSC was alleging a series of securities law violations had occurred.

Upon becoming aware of the allegations, Speakeasy immediately began investigating what had occurred in connection with the Speakeasy financing cited by the BCSC. Speakeasy quickly became aware that the financing cited by the BCSC as potentially problematic was structured, negotiated and implemented internally at Speakeasy by Anthony Jackson at a time when he was both a director and chief financial officer of the company.

It became clear that parties who purported to be consultants to Speakeasy purchased shares from Speakeasy in reliance on the consultant exemption (thereby acquiring free-trading shares), and Speakeasy then used a significant portion of the funds received from such consultants to pay those consultants and others for the services they purported to offer Speakeasy. When Speakeasy publicly disclosed the closing of the financing on July 24, 2018, it announced the gross proceeds that it had received ($3-million) but did not include any disclosure about the fact that $2,417,000.60 was raised from the purported consultants, and $1,459,455.70 was repaid to those persons and other purported consultants associated with them.

Speakeasy's investigation was complicated by the fact that Mr. Jackson ceased to be a director and officer of Speakeasy on Sept. 10, 2018. After Mr. Jackson left, Speakeasy could not find copies of a number of documents relevant to this financing. In particular, the company did not have copies of any consulting agreements, including those relating to the purported consultants who participated in the financing. Speakeasy sought copies of each consulting agreement from Mr. Jackson (who had responsibility for negotiating and approving those agreements), but did not receive such documentation from Mr. Jackson until December, 2018, after the BCSC investigation began. Speakeasy is not confident that the documentation provided was created contemporaneous with the dates set out on the documents. In any event, all of the purported consulting agreements had terminated in accordance with the terms of the consulting agreements before December, 2018, so it was not necessary for Speakeasy to take steps to terminate them. Speakeasy plans to take steps to recover funds advanced to the purported consultants, who provided no services of value to the company.

Speakeasy has also taken additional measures to improve corporate governance and internal control and to strengthen its management team. These include:

  1. Creation of a compliance officer position to focus on governance and legal compliance issues;
  2. Appointment of a new chief executive officer with extensive industry experience;
  3. Appointment of a new chief financial officer who is a CPA with significant public company experience;
  4. Implementation of a set of governance policies and procedures, including board mandate, committee charters and a disclosure policy, which now govern Speakeasy and its business;
  5. Continuous efforts to a board of directors committed to corporate governance best practices.

The biographies of the company's management team and board of directors are set out on Speakeasy's website.

Collectively, Speakeasy believes its current group of management and directors has significantly more public company experience and expertise and is in a much better position to oversee Speakeasy's business and ensure compliance with legal requirements.

In addition, Speakeasy has undertaken to retain an independent monitor for a period of at least one year to review Speakeasy's corporate governance and compliance policies, procedures and processes. Speakeasy is committed to implementing best practices in corporate compliance and governance.

About Speakeasy Cannabis Club Ltd.

Speakeasy holds a cultivation, processing and sales licence, issued by Health Canada under the Cannabis Act. Speakeasy owns 290 acres of land in Rock Creek, B.C., and leverages three generations of farming experience in British Columbia, as well as its favourable location to grow and process high-quality cannabis products at low cost. Speakeasy cultivates small-batch, high-quality craft cannabis in its 10,000-square-foot indoor facility and has completed the development of its licensed 60-acre outdoor field. The company expects to complete planting its outdoor cultivation area during second quarter 2020 and to produce approximately 70,000 kilograms of outdoor, sun-grown cannabis in 2020.

We seek Safe Harbor.

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