“This is Bill.”
This was it. The moment many had been waiting for. After three days
from me about how Creative Edge Nutrition’s (OTO:FITX
, Stock Forum
) CEO was making promises that it didn’t appear he could deliver on, and three days of steadily eroding stock price, and three days of allegations from FITX investors that I was intentionally trying to hurt the company, the enigmatic Bill Chabaan and I were on the phone.
It was a tad frosty.
“So Bill, I want to open this by inviting you to correct the record. What, of the things I’ve written about Creative Edge over the last few days, was incorrect?”
“I can’t remember what you wrote,” said Bill.
“Really?” I asked. “Seems like you would. You released a statement about it on Facebook. Talked about ‘credible journalists’ and all.”
“I honestly can’t remember it,” he replied. “I don’t recall any of it. I’m serious. It’s a fart in the wind, not going to sit and recall it. I don’t look back.”
For those who missed it, my major beef with Creative Edge is the ongoing story that it is building the “world’s largest medical marijuana facility” in Lakeshore Ontario. Town officials say he hasn’t made a zoning application to them for such a facility, and he’ll need to in order to be allowed more than the five employees he’s currently allowed, and the 60,000 sq. ft agricultural use presently permitted.
Tweed’s already permitted, licensed and producing facility is 2.5 times that size. Supreme Pharmaceuticals just purchased their second facility
, an agricultural greenhouse that’s 325,000 sq. ft. in size. Chabaan has some catching up to do to be the world’s largest, or even Ontario’s largest, facility.
And town officials made it clear to me Monday that any process to expand on what’s already been zoned would take anywhere up to half a year – if it could even be done. The Mayor has since announced there would need to be public meetings on the topic before it can go forward, something no pro-grow person wants to hear.
Chabaan claims it wasn’t his boast that started all this.
“The ‘world’s largest’ story came out when we did a deal with Growlife (OBB:PHOT
, Stock Forum
), and they dropped press releases saying it was going to be huge, so that’s where that came from,” he said when I raised the topic.
“I’ve never said that in any news release I’ve put out.”
Creative Edge has since disassociated with Growlife, when that company was faced with questions around share deals and was trade-halted by the SEC
, launching the US sector into a minor freefall.
Regulators today issued a warning
– the second in a month – telling investors to be cautious of trading in medical marijuana companies on the OTC, where Creative Edge is listed.
“So you won’t be building the world’s largest pot facility?” I asked.
“It will be the largest in Canada, and the world. We’ll do everything in our power to make that happen,” he replied.
“So.. I’m confused. How many square feet will it take to build the world’s largest pot facility?”
“I don’t know. I don’t have that number,” said Chabaan. “I have engineers, they deal with that. I can get it for you, I’m sure.”
I push for more and he says, “I’d have to get back to you. It can be done on a 10.3 acre property.”
This is a little odd to me, and I tell Chabaan so. If I ask the CEO of any other company how many square feet they’re building out, or plan to build out, they know. It’s the first thing they talk about. It’s on page one of their slide presentation.
But Chabaan doesn’t have the first number needed to back his claim.
“I employ the best people and they work that stuff out,” he says.
So this is where we engage my problem with Creative Edge. Every other company out there could make the claim they’ll ‘do everything in their power’ to build the world’s largest grow op. But they don’t say that, because it’s the sort of unprovable, unbankable claim that makes them look two-bit and draws regulatory scrutiny.
It’s like when a politician says they’ll end child poverty by 2050 – good luck being held accountable on that promise.
At Stockhouse, we get companies rolling through every other day saying “We’re going to be the Google of…” or “We’re going to develop the iTunes of..” and it’s always a red flag. It hurts credibility, unless you can point out how you’re going to do that.
“So, assuming you can get to this world’s largest point, how are you going to sell 1.3 million lbs of pot a year,” I ask, “when Canada’s patients are largely on disability?”
“We put the application together, basically looked at the market data for Canada. There are currently 40,000 patients who have almost impossible access to medical marijuana under the current system, there’s a ten week backlog at Health Canada. We know based on market data that 16.5% of the population are using marijuana, we know based on data from the US that 80% of people who possess their cards there are recreational users fitting into the system somehow. We took those numbers and extrapolated, and said ‘holy sh*t, 6 million Canadians are using.’ If 80% go legit, we’ve got a lot of people. If 10% go legit, we’ve got 600,000. Health Canada believes it’ll be 500,000 by 2024 - I think we’ll hit those numbers across all LPs a lot quicker. They’re legitimizing on a federal level, because companies are removing medical marijuana from drug testing, because people are going to fail and now it’s a prescribed drug, you’d have huge numbers failing.”
So, in short, Creative Edge’s plan is to go mondo huge not for the current legally prescribed Canadian medical marijuana market, but for a world where, one day, recreational use will be fine.
“I don’t want any of those 40,000 users,” he says. “Not a single one. Our competitors can have them.”
“I’m not worried about Tweed’s head start. If we get some of the 40,000, so be it. We’ll create our own patient base.”
Bringing Chabaan back to the still unanswered questions about how he’s going to move from 60k sq. ft and five employees to the world’s largest pot facility, he doesn’t ruffle. A lawyer by training, Chabaan can go toe to toe without breaking a smile, and though he does his share of ducking, he doesn’t dive.
“How do you grow a company if you give everybody every plan you’re doing?” he says.
“If you don’t want to talk about it,” I ask, “why make the claim? Why put it all over your Facebook page?”
“Do you know how many people are on our team?” he asks. “Over 200. Do I know every detail? No, I’m not there at every turn. My job is to run the company.”
“But you’ve claimed massive yield, massive price per gram targets,” I say, “and you’re in a position where you’ve paid $12m to build out 60,000 square feet and have, presumably, $8m left. To multiply that facility by ten times, which you’d need to do to be ‘world’s largest’, you’d have to go get more money – and you’re at your allowable share limit.”
“Naaah there’s different techniques to get good yield. We could go up and down a few storeys on the same plot. And we’ll sell some strains for $5 a gram, some for $30.”
He goes on to explain that ‘building two’ is going to be an R&D facility, where the company will research new strains, aimed at specific diseases, and utilize techniques aimed at getting maximum yield. Rezoning plans for building three are afoot, though he says they won’t need that facility for some time.
I ask him about a topic town officials have raised, that his facility water needs for now are fine under current zoning, but may be too heavy for the town water supply to handle should he grow as promised.
“We’re going to use water reclamation, so that’s not a problem,” he says. “If need be, we’ll truck it in. We’ve already given Hydro our power demands needed for 1.3m lbs of product, and we’ve signed an agreement on that. And we’ll end up paying for it”.
If it sounds like I’m harping about this ‘world’s largest’ business, I’ll admit I am, and here’s why: Creative Edge is a company that definitely has issues and assets. A 60k grow op, in and of itself, is nothing to sneeze at. It’s a fine step one. And the company does have a hemp play that Chabaan and I promised to get into more detail about in the weeks ahead, as I think hemp is a space that – eventually – will be massive, and Creative Edge is neck deep in it.
And Chabaan has surrounded himself with a good number of strong reputations. There’s no denying he’s got some serious people involved in various aspects of his business – the kind of people you would hope a CEO would look to in order to build a serious company with great investment potential.
And the company certainly has a lot of true believers. Don’t believe me? Write one negative word about the company online and see what they say about you on iHub. Investors have made a lot of money on Creative Edge to date and they will defend their ground in the face of just about any evidence that the company might not be perfect, often blindly. Growlife’s CEO wishes he had fans like Bill has.
But there are also problems, first and foremost being Chabaan’s tendency to engage in over-promising.
I ask him if, if he had his time over, would he have made the same statements and claims that have been so controversial.
As a lawyer, he knows the best way to answer that question is to not answer it at all. So he doesn’t, instead going on a long monologue about how great the town of Lakeshore is to work with.
“Bill, let’s just step back from all that for a second. Do you think that you have a tendency to say too much?”
“No,” he says. “I’m extremely careful about every word I say.”
Somewhere deep inside me, my gears change at hearing those words.
Put ‘journalist’ in park, put ‘pundit’ in overdrive.
“With respect, Bill, you’re not,” I reply. “You’re really very extremely not careful about what you say, or we wouldn’t be having this conversation. And it’s had you in trouble before. Health Canada, yield numbers, world’s largest, ‘moving to the NASDAQ’… I get that it’s the OTC so promotion is important, but you have an actual business here that can stand up on its own. It doesn’t need to be the world’s largest to do well. I don’t wanna tell you how to be a CEO…”
“Well, you do,” he says.
“Actually, you’re right, I do,” I laugh. “Cut it out with the big claims, man! Run on your people and your real facilities and your partners. You don’t need to be Amazon!”
He shouldn’t. Creative Edge has a believability problem, and in a market that struggles for legitimacy, making broad and unprovable claims adds to the throng of people who say this is no business sector to invest in. Competitors will generally not trash talk each other to a reporter, even off the record, but a quick phone around of executives at three other companies revealed no shortage of off-the-record opinion on Creative Edge’s business plan – and more specifically Bill’s visionary statements.
One of those executives was happy to go on the record.
Norm Marcoux, from privately held ECGreen, believes Chabaan’s tendency to run off at the mouth hurts everyone in the business.
“The Ontario site will be able to grow 1.3 million pounds of pot from 50,000 plants? WOW!” he says via email. “That’s a world record of 26 lbs per each and every plant! They must have a world class team growing this efficiently.”
Marcoux goes on: “$5 billion in sales per year? WOW AGAIN! That’s the equivalent of $3,846 per pound! The gangs would love to get $1,500 - $2,000 a lb on these volumes.”
“If he were to get all 500,000 clients he says there will be in two years, that would mean that the 1.3 million pounds they produce every year would be enough to provide >3 grams per day for every person. Too bad all the other ‘super-grow’ facilities across the country will go out of business!”
Chabaan doesn’t have much to say about Marcoux, other than that his is a small time operation and that he’s ‘heard’ that a local news reporter who posted a story quoting the Mayor of Lakeshore saying Creative Edge would need to rezone and hold public meetings “is somehow connected to Marcoux.”
“I’m like you, I’m hated,” he says.
“You know how many people I’ve told to f*ck off?,” he asks “I’m a scam? F*ck you. But I have to count and hold my breath, once you put it out there, you can’t take it back.”
“Obviously we don’t expect to hit 1.3m lbs per year right away, the market couldn’t bear it,” he says. “We’ve had Health Canada in discussions in order to export it once we’ve satisfied current demand.”
“That’s a great long term plan,” I say. “But the sizzle in the steak is the mischaracterization that somehow you’re going to do this, like, now. And that’s not something you’re correcting, it’s something you’ve promoted.”
“I get what you’re saying for sure,” he says in a moment of humility. “I would never have told anybody we applied for a license if I had my way. I would have kept it under my hat.”
I sputter at this, because of all the weedco CEOs I’ve dealt with, few are as ‘public’ as Bill Chabaan. He’s all over Facebook every day. He posts pictures of himself standing in front of the NASDAQ. He’s got a steady stream of photos going out there showing every steel beam that’s put in place. He’s got fan sites that promote the company, even one selling t-shirts that say “I Bill-ieve!”
Bill’s created a cult around himself, and part of that is fueled by the lofty promises that drive penny stocks up but, occasionally, land hard.
“I don’t deny it will take time to meet our goals. Sometimes what goes out there isn’t what I wanted. But I answer to FINRA and the SEC. Every single press release we’ve been written has been right.”
Chabaan claims he’s not a promoter and would prefer if none of this was an issue.
“Our shares took off when Lakeshore leaked that we applied for the property,” he says. “We had to come out with a press conference because it got leaked, we had no intention of telling anyone. I wanted to keep it under our hat. I don’t like the media, but you play the cards you’re dealt.”
“Everybody had gag orders, nobody wanted to say anything. That’s how I prefer things. Site two got leaked too.”
Seems like a good opportunity to, calmly, politely, ask again – should you wheel back the world’s largest claim while you’re only zoned for five employees?
“We can build a few storeys up, a few storeys down. We could put ten storeys on that facility that’s already zoned,” he says.
“Yes, but so could any of your competitors,” I point out. “Should they be saying they’re going to build the world’s largest pot operation too?”
“We have the vision,” he says. “Look, people take everything with a grain of salt. If we make a forward looking statement, we plan to do it. We have the data to back it up.”
I’ll say at this point, to set the scene a little, if it sounds like we’re going at it hammer and tong, we are. But not in a nasty way. No voices raised. Nobody cutting anyone off. I’m pounding on Bill for what I perceive to be things he’s doing wrong, and he’s standing and sometimes deflecting and sometimes returning fire, but one thing he won’t do – ever – is admit he’s put a foot wrong. Lawyers rarely will.
As we pass the 15 minutes we originally outlined for the interview and near the hour mark, I apologise for going long, but he’s not bowing out.
“You should be a lawyer,” the lawyer laughs. “I’m fine to talk as long as you want to.”
So I get back to the open wound – the news stories he’s promoting that say world’s largest, over and over.
“Look, I’m not writing those news stories,” he says. “If you interview me and you focus on one thing, I can’t control that. [..] “I can’t control what they write. It’s our vision to be the largest. We’re going to try to make it happen but I never said it would be in the next few weeks.”
But a recent New York Post article, headlined “World’s largest legal pot facility to open in Ontario
”, which Chabaan happily posted to the company Facebook page and which generated a monologue mention from The Late Show’s Seth Meyers
“The Ontario site will be able to grow 1.3 million pounds of pot from 50,000 plants,” the article said. “An operation that could produce $5 billion in sales per year when it starts producing in a few weeks after it passes government inspections.”
Assuming Creative Edge’s 60,000 sq. ft facility is given the Health Canada green light to open – and I’ve no sense that it won’t – it may not happen for months. And when it does, it won’t be the world’s largest anything. And it won’t ‘start producing’ pot ‘in a few weeks,’ nor will it be able to grow 50,000 plants or generate 1.3 million lbs of product without substantial building, permitting and, according to the mayor, rezoning.
Chabaan admits this, but says it’s out of his hands if a reporter gets it wrong.
“I think if I looked at every single interview, I’d find something that’s incorrect,” he says.
“But Bill, the headline? You’re going to leave an incorrect headline out there?” I ask.
“Headline, story, everywhere.”
As many investors know, there are stringent rules at the upper end of the markets about what a CEO can say. Every word they state in a public place, or to the media, or in a press release, is something they need to be accountable for. As a journalist in this space, I’m very familiar with that concept, as we regularly hear from companies that want a seemingly insignificant fact changed because it’s not accurate – or not accurate enough.
Even the OTC itself called our office last week to remind us that it prefers to be known as the OTC Markets, asking us to change previously written stories to accommodate that phrase.
Chabaan tells me he didn’t tell the reporters he’s talked to anything about being the world’s largest facility. I ask if they all came up with it by themselves, and he says he doesn’t know.
“Would I love to be the world’s largest? Absolutely. Are we aiming to be the world’s largest? Absolutely. But it will obviously be done in stages. We’re not out there saying it will happen overnight.”
Chabaan is quoted in the NY Post story saying, “The facility is done, it’s ready,” and, “It’s laid out [like] a manufacturing facility for prescription drugs.”
The CEO has not asked for a correction to the NY Post headline, or the story. Nor has he asked for one on a video by TheStreet.com titled “How to build Canada’s largest medical marijuana facility
,” posted to his Facebook page, nor a recent CTV News story with the title “A Lakeshore medical marijuana facility may become one of the largest
Certainly if you look over Chabaan’s Creative Edge Facebook page
you’d be in no doubt that’s what his plans are. There’s a long list of articles posted there with “world’s largest” in the headline. I remark to Chabaan that it appears to be his major marketing point, which drives his share price upward whenever it’s repeated.
“I’ve never said anything about the world’s largest thing in any news release,” he replies. “And I don’t think it’s driving our share price.”
“I can’t control what journalists write about. I’ve talked to the New York Times six or seven times, Washington Post. If they get something wrong, what can I do about it?”
“You could ask them to correct it,” I say. “You have $250 million in other people’s money in your market cap, and if they’re investing that money in you because they want to be in the world’s largest pot facility, you have a duty to them to correct the record, don’t you?”
“I’m not going to go around correcting stories,” he says.
Chabaan is nothing if not consistent. Earlier this year, he announced that Health Canada had told him to ‘hurry up and apply’ for his MMPR so they could approve it. The stock jumped some 600% following that remark.
Health Canada denied it, and Chabaan subsequently walked back the statement publicly, but he still says it was true.
“I have the emails! I had FINRA all over my ass and I showed them emails and they were fine with it.”
I ask if I can see the emails. “No, I’m not going to do that,” he says.
“I’m not going to jeopardize the process for your story. I sent it to FINRA who backed it up to the regulators, that’s all that matters.”
I ask for a contact at Health Canada who could verify his claim.
“No, you can’t get anyone at Health Canada. Nobody answers their phone. It’s impossible,” he says.
I haven’t always been troublesome for Creative Edge. A few weeks back, I told the audience at the Vancouver GreenRush Conference that it looked like a good example of a medical marijuana vertical integration play, which I think will be better in the long term than the many grow-and-sell operations that are built on the belief weed prices won’t go down when supply ramps up and the grey market refuses to stop growing their own.
But I made that claim with a coda – that I believed the company may need to clear some things up with the city first, and was waiting for the city to confirm or deny that was the case before I could give the company my thumbs up.
And the Mayor of Lakeshore was distinctly not okay with anything beyond the current permits, at least not without extensive research, public meetings, and engineering reports.
This changed my outlook on the company from ‘they’re doing it’ to ‘they’re promising more than they can deliver.’
Talking to Chabaan, a lot of open sores around Creative Edge were well answered. I asked about the wildly blown out share structure, and he explained he was brought in to that situation as an outsider and is working through it as best he can. We talked hemp a little, and about his background in building out a chain of nutrition stores and subsequent production facility.
There is a business here. It’s got some obstacles, but there is a business to be had.
“Alan Brochstein was like you,” he says. “He called us a scam until we sat down and talked to him and now he sees us a good company.”
“When I came into this, I was new to the public arena,” he says. “Promises were made by people that weren’t kept, but what was my alternative? Sell some debt to raise money? You live and learn. It took a good year to learn.”
I ask him if he would have taken the company public, if he was there at the beginning, and he says “Definitely not.”
“I believe we were brought in from my private company for a sale. But I took this thing and built the brand, we used our own money. We played the hand we were dealt.”
Chabaan is not a carpetbagger. He has distribution, production, development and legal chops. He’s a much MUCH better leader for FITX than those who came before him, who blew out the share structure and had little to show for it.
But he’ll cut a corner too.
The $20m needed to finance the existing grow facility came from two private investors because the company has butted up against the limit of shares they can sell without a shareholder meeting to create more.
Creative Edge bought into CEN Biotech cheaply, and gave the subsidiary the pot facility so that subsequently raised private money would be based in shares of that company, not Creative Edge. In essence, he sold a quarter of the major company asset for the money needed to build it.
Some aren’t too happy about that plan, being as it does an end run on investors who might have liked to buy in, had they been given a chance. Others still are concerned about the dilution of the company performed without shareholder permission.
And then there’s the large amount of restricted paper that is about to come free trading.
“It’s 800 million shares,” says Chabaan. Two dozen people, I believe. They’re friendly hands.”
I ask him if they’re likely to sell, taking profit on their position.
“They won’t. The shares don’t amount to much out of three billion. If the share price goes down to $0.05, it goes down to $0.05. Can’t do anything about it,” he says. “A lot of those restricted shares are family, friends that bought in because they believed in me and my vision. They said, ‘You know what? I want in.’”
“Not concerned about it,” he adds. “It’s all friends and family. They’re not selling. It’s all strong hands.”
Chabaan has sold, however, admitting that he’s traded away 5 million of his shares in the last few months “because the company owes me $2 million. I sold some shares to get it back because, financially, I’m in hardship.”
A cynic might wonder if, with so many friends and family involved in financing, if there's not an incentive there for Chabaan to promote hard and keep the price high, rather than play the long game. If all that paper does start selling, it could have a detrimental effect on not just the share price, but on the ability of Creative Edge to finance going forward.
Chabaan isn't worried about that.
“We’ll borrow money, we’ll pay interest on it. Once we get rolling, you’re going to make 70% margin. It’s fine.”
“Let me tell you,” he says. “I want to be the biggest, I want to be the best. I put the team together and will accept nothing less. I didn’t do it to be average, I did it to be pioneers. I give the people what they want.”
I tell him I’m madly resisting the urge to take that last line out of context and run with it.
“Yeah, no kidding, right?”
Finally, I ask Chabaan if there’s anyone in the market he’d invest in. He says no, that he’d always get more out of his money investing in himself than the market.
I clarify – is there any competitor he thinks is doing a great job, or is the industry heading for a reckoning?
“No,” he says. “They’re all going to get flushed down the toilet.”