With its mountains, beaches and movie-star good looks, Vancouver is a world-class urban jewel, despite having been home to a historical bit of world-renowned funny business known as the Vancouver Stock Exchange (VSE).

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Cocaine, Mongolian coal mines and the checkered path of a Vancouver-area penny stock Back to video

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Anyone old enough to remember the VSE will recall it was the premiere playground for mining stock promoters, smooth talkers and crooks who would sell investors on the promise of striking it rich, just as soon as this or that highly speculative resource sector play turned out to be the genuine El Dorado.

There were some honest-to-goodness El Dorados, lest the legendary Eskay Creek gold bonanza be forgotten, but right alongside the winners were the characters of ill repute, pumping the price of otherwise worthless penny stocks and cashing out ahead of the inevitable crash. Forbes magazine knew the score, and famously dubbed the VSE the “scam capital of the world” in its May 1989 issue.

“Each year it sucks billions of dollars out of legitimate markets by inducing dupes to invest in mysterious outfits making hydro-douches, computerized golf courses and airborne farm equipment,” Joe Queenan said in his piece for Forbes.

Sometimes it may have even seemed that one company was into all those things, and more, at one time or another in its various corporate incarnations, and that strategy continues today.

For example, Adastra Labs Ltd. did not get hooked on hydro-douches, but during the past 35 years — as Consolidated Gulfside Resources Ltd., Gulfside Industries Ltd., Gulfside Minerals Ltd. and Arrowstar Resources Ltd. — it has been an Oklahoma oil and gas player, dabbled in Mongolian coal, leaned into web-based music accounting gizmos, eyed gold in northern British Columbia, and trumpeted the ecological-friendly transformative potential of recycled rubber.

Chief executives have come and gone as fast as the name changes, including one who went so far as getting himself banned by the BC Securities Commission, and another who was the commander of a United States nuclear naval submarine.

Arrowstar Resources became Adastra Labs Holdings Ltd. by way of a reverse takeover, a nifty regulatory shortcut for a private company to go public without all the regulatory headaches. With the change in name came a change in focus from mining to cannabis, a new listing on the Canadian Securities Exchange and, lately, a new chief executive at the helm named Michael (Mike) Forbes.

He is a pharmacist by trade, and claims to have an “honorary MBA” from Western University’s Ivey Business School — in his corporate bio, on the company’s website, in company filings with stock exchange regulators, as well as in polite conversation — but the university said he has no such degree.

But what Adastra Labs legitimately has is a Health Canada licence to possess, produce, package and sell cocaine. That is not a typo, and it could be a potential home run for investors, assuming they believe, as Forbes does, that the only way to win the war on drugs is to legalize, regulate and tax them, thus ensuring a safe source of user supply.

And if that scenario sounds even more far-fetched than airborne farm equipment, it isn’t, necessarily. B.C. is less than two months into a three-year decriminalization pilot project to address a toxic drug supply epidemic that claimed more than 2,200 lives in the province in 2022, according to government data. The project permits drug users to possess up to 2.5 grams of opioids, such as cocaine, crack cocaine, heroin, methamphetamine and fentanyl.

Where to get the coke? Enter Adastra Labs if all goes according to the future Forbes envisions.

“I was looking at it, thinking, ‘OK, where is the government going to get all its safe supply?'” he said in late February.

A few days later, however, Health Canada clarified in an email that the company’s licence does not permit it to “sell to the general public,” and only allows for the sale “to other licence holders who have cocaine listed on their licence, pharmacists, practitioners, hospitals, or the holder of a section 56(1) exemption for research purposes.”

Forbes made the same distinction, but a company press release dated Feb. 22 did not. An investor, in theory, may have read the release and perhaps reasonably concluded that Adastra Labs could legally sell cocaine to anybody.

The company clarified that this was not indeed the case in a subsequent press release issued nine days after the first, but only after Health Canada contacted Adastra Labs to remind it of the very “narrow parameters of their licence,” and after a public outcry erupted around the spectre of legalized, commercialized coke, a hullabaloo amplified by a Canadian Press report, which peaked when Prime Minister Justin Trudeau weighed in from Ottawa to confirm the government was not looking at commercializing the drug.

In the interim, Adastra’s stock price had gone on a bender, doubling to $1.65 by the morning of March 3, just a few hours prior to the company clarifying its licence conditions. It is the sort of whoops-a-daisy the ghosts of VSE’s yore are likely getting a chuckle out of. By midday March 7, the stock was trading for around 50 cents, though it has rebounded to 70 cents.

The stock price’s quick rise and fall has prompted Vancouver law firm Slater Vecchio LLP to file a proposed class-action lawsuit in B.C. Supreme Court against Adastra for “inaccurate and careless representations related to their ability to legally sell cocaine,” which “artificially inflated the company’s stock value.” The lawsuit’s allegations have not been tested or proven in court and Adastra did not immediately respond to queries from the Vancouver Sun, which reported the filing, nor the Financial Post.

At the heart of the controversy is a 43-year-old CEO who described himself as someone with a “busy mind.” It is a busyness reflected by the number of business ventures Forbes has been involved with, according to his personal web page for the Forbes Group. They include storage facilities, craft beer, bubble soccer and a chain of drugstores he “bootstrapped” into existence, he said, sanding down the shelves himself prior to opening his first outlet on Vancouver Island at age 24.

“I worked relentlessly,” he said. “I didn’t have any hand-me-downs from mom and dad. I had to hustle.”

The hard work apparently paid off when Forbes was accepted into and successfully completed the QuantumShift program in 2017, a rigorous, five-day developmental program for some of Canada’s most promising entrepreneurs delivered by the Ivey Business School.

QuantumShift is for “CEO business owners who are past startup, and only 40 entrepreneurs are accepted into this program annually,” a university spokesperson says. Program participants are not, however, awarded MBAs, honorary or otherwise.

Forbes said he had been “led to believe that it was an MBA program” when questioned about its provenance. He also said he had a plaque on his wall at his home in Victoria and could take a photo of it as proof, but that he would not be home for another “two weeks.”

But he added that he “never got to where I am today because of the letter behind my name, I promise you that. It is about what I have done, so the way I lead companies, too, is to remove all titles and go from your ability.”

But is claiming to have an honorary MBA in regulatory filings an offence? A British Columbia Securities Commission (BCSC) spokesperson said that should the exchange watchdog have reason to believe disclosed information was incorrect, and the information was deemed “material,” it might ask the CEO to provide proof of the honorary degree, and if the CEO couldn’t provide proof, it might ask for a correction.

I didn’t have any hand-me-downs from mom and dad. I had to hustle

Michael Forbes

How about Adastra Labs’ Feb. 22 press release that implied the company could sell cocaine to anyone— a release the company clarified nine days later at Health Canada’s urging, and amid prime ministerial hue and cry?

“Public companies are required to provide timely, accurate disclosure of material information about their businesses so investors can make informed decisions. It is illegal to misstate material information, including by omission,” the regulator said, noting it doesn’t comment on its investigations, planned or otherwise.

“If the BCSC has reason to believe an issuer’s disclosure is misleading or inaccurate, the BCSC could seek more information from the issuer to decide whether the issuer needs to file amended disclosure. Other steps could include issuing a cease trade order, a temporary order or a notice of hearing (an allegation that a person or entity violated the Securities Act).”

Having an error on one’s resumé, of course, isn’t the most wicked sin ever committed by a chief executive, particularly one who is the head of a company peddling its wares on a junior stock exchange.

The VSE is no more, but the highly speculative, ripe-for-manipulation home to honest and not-so-honest corporations keeps merrily hustling along on junior exchanges. The VSE merged with several second-tier Canadian stock exchanges to form the Canadian Venture Exchange in 1999, which subsequently evolved into the TSX Venture Exchange.

It is the Wild West of investing, said Robert Yalden, a corporate law and finance professor at Queen’s University law school in Kingston, Ont., which can attract some not terribly “reputable” people who can operate in what amounts to a market grey zone, preying upon unwitting investors, as well as those who presumably can’t resist swinging for the fences.

It is an environment where investors best beware, understanding that the odds of lassoing the next Amazon.com Inc. amid a rodeo awash in high-probability failures, is highly improbable, while the danger of encountering a ne’er-do-well sort is not exactly nil.

But junior exchanges aren’t solely a sea for the suckers and the sharks, Yalden said. They are, warts and all, a long-standing, free market where legitimate companies, struggling to raise the kind of capital they need to grow, can get their hands on some money, while offering potential shareholders an out should they decide to sell to another willing buyer.

“We need junior exchanges to support the capital-raising process for emerging companies in all sectors, including mining and tech,” he said.

Part of the thrill for many investors is simply being in the game, and knowing there is always a chance, however slim, that the thing that seems too good to be true comes true and makes all those sages who bought in at a nickel look like a bunch of Einsteins.

So, what, exactly, is Adastra Labs selling? A cocaine dealers’ licence aside, cannabis is the company’s bread and butter. One cannabis industry insider, who requested anonymity, described the company today as being capably run and “focused on delivering products.”

That is a refreshing change, since delivering on anything has historically proved challenging for an outfit that was originally formed in 1987. The Mongolian coal mine certainly did not pan out, and was instead dogged by issues around disclosure, and a tiff among shareholders over who actually owned the mine.

The company’s short-lived interest in music accounting software in the early 2000s was another bust, orchestrated by Jack Wasserman, the CEO at the time. Among his predecessors was Owen Richman, who doubled as president and director, and ran afoul of the BCSC for some bogus invoices in the 1990s. He was found to be “unacceptable to the exchange as a director or officer of any company listed on the exchange” following an investigation by the regulator.

The company’s biography has honourable men, too. Andy Hale, a former nuclear submarine commander, once prowled the Pacific Ocean in a 560-foot submersible designed for “stealth,” with an arsenal of Tomahawk cruise missiles at his fingertips. The 60-year-old American today works at a family winery in Abottsford, B.C.

Hale is polite and friendly in conversation, but not one for chatting much about his time at Adastra Labs. He said he came aboard when it was a privately owned enterprise to get it “operational,” working through its cannabis licensing agreements, and what-not, before moving on in March 2021.

He also shared a story about a reunion at the United States Naval Academy in Annapolis, Md. After former classmates learned he was the CEO of a cannabis company, the reaction was more or less split between those who thought it was “awesome” and those who walked away without saying anything at all.

But withholding comment is not part of Dana Larsen’s personal make-up. The outspoken Vancouver drug policy reform activist runs Get Your Drugs Tested, a Vancouver lab where drug users can get their drugs tested for contamination. He said the view from the addiction frontlines in Vancouver is grim.

“People are dying on a regular basis,” he said.

Most of the deaths occur among opiate users due to fentanyl. Larsen estimates about one in every 100 cocaine samples the lab analyzes is contaminated with fentanyl, a potentially lethal additive. Street cocaine can also be cut with other substances such as talc and levamisole, a veterinary drug that won’t kill an addict in one go, but is deleterious to their health over time.

Adastra Labs is licensed to possess up to 250 grams of cocaine. Were that cocaine to be sold on the street, Larsen estimates it would fetch about $25,000.

Larsen’s view is that were cocaine to be legalized and commercialized, “the real money” would be in coca-based drinks, and not snortable powder.

“In South America, they typically consume coca in teas, or else they chew the leaves, and it is still stimulating,” he said.

Maybe therein lies the long game for a company that has been around for a long time in one guise or another. Adastra Labs is legally allowed to possess coca leaves under its Health Canada licence.

It is early days, and Forbes said he wants to get around a table with “the government” to try to find a “solution to save more lives.” It is about “harm reduction,” he said.

The first time Forbes tried cannabis he was in his mid-30s. He said he has never used cocaine, but the scientists in his lab are going to be making it, and someday, when public attitudes shift, and the Gordian knot of government red tape unspools, he can imagine cocaine being sold at a government-type outlet near you.

“The laws aren’t there, yet,” Forbes said. “What I can tell you is, I can import from other countries, I can produce it and I can possess it.”

But what he can’t do is sell cocaine to the public, which is the kind of distinction potential investors may want to be aware of before they inhale the hype.

• Email: joconnor@nationalpost.com | Twitter: oconnorwrites