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Taking a Closer Look at Supreme Cannabis Company Inc., One of Canada’s Big Cultivators and Their Stock Options

The Cultivator Recently Issued 7,000,000 Stock Options to Employees, Officers and Directors

The Supreme Cannabis Company Inc. (TSXV: FIRE) (OTC: SPRWF) operates under a wholly-owned subsidiary called 7 Acres out of Ontario, Canada. With a current market capitalization of roughly $311.487 million, they are much smaller from a capitalization perspective compared to their biggest competitors like Canopy Growth Corporation (OTC: TWMJF) (TO:WEED) or Aurora Cannabis Inc. (TSX: ACB) (OTC: ACBFF) but are still one of the biggest players in the Canadian cultivator space. They are establishing themselves for the commercial sale of adult-use cannabis in Canada once legislators put it into law which should happen later this year supposedly.

John Fowler CEO of The Supreme Cannabis Company, cannabis news
John Fowler CEO of The Supreme Cannabis Company

In the meantime, CEO John Fowler and other company directors are trying to optimize the company while waiting for recreational sales to begin. Last month The Supreme Cannabis Company issued 7,000,000 stock options to employees, officers and directors representing one share each, but they do not expire until March 29th of 2028. With an exercise price of $1.80, nobody should have much of an interest in exercising their right to own stock at $1.80 per share since it is currently trading around $1.27 per share.

The Supreme Cannabis Company, Inc. SPRWF chart, marijuana stocks

As you can see from the above chart, the stock is struggling from a technical perspective having dropped below its 200 dma, with its 50 dma threatening to cross below the 200 dma as well. The low of a $1.10 on April 4th is likely its next level of support. However, you can see that SPRWF also reached its high, along with the rest of the cannabis sector, at the beginning of the year touching $2.79 on January 3rd. The exercise price of a $1.80 on the options is about a $1.00 off from the high and sits a little better than the average price of the range of the stock over the last six months.

The Supreme Cannabis Company Employee Caring for Wappa 21 Cannabis Strain
The Supreme Cannabis Company Employee Caring for Wappa 21 Cannabis Strain

Offering up stock options like these are nice for employees and also provides good PR for the company without having to make a big financial commitment right up front. The fact that the options are already underwater is not great and means that employees are really hoping that recreational sales begin in Canada or something can spur the stock much higher, otherwise they will be worthless especially as time goes by. With incentive stock options or ISOs, any employees issued the options should read through the vesting schedule to clearly know when they can exercise the option and what would happen if the company were bought out, which is a common practice of Canopy, Aurora and Aphria.

Options available to the general trading public are not very common in cannabis stocks. They can certainly be found in some of the larger companies here in the United States such as Scotts Miracle-Gro Company (SMG) or INSYS Therapeutics, Inc. (NASDAQ:INSY). But, for the most part marijuana stocks are too illiquid for calls and puts, but if legalization happens in Canada, and possibly here in the United States someday as well, then money will likely come flooding into the cannabis sector bringing real reasons with it to offer all sorts of instruments like options. News early last week suggested that President Trump had vowed to Senator Cory Gardner of Colorado that he would prevent Attorney General Jeff Sessions from prosecuting and state legal cannabis business or consumers in Colorado although he was not clear about the rest of the country. It certainly seems like the United States is slowly heading in the same direction as Canada.

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Richard Lowe

Richard Lowe is a 14-year veteran of the financial sector with licenses as a commodity broker (Series 3) and investment advisor representative (IAR Series 65). Along with a focus on raising capital for the firms he was employed with, he also wrote and edited much of the content published by them. He holds a BA in Journalism from the University of Massachusetts. He has been a longtime advocate for marijuana legalization due to the social injustices associated with marijuana prohibition and the strong potential for the medicinal benefits of cannabis.

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