Continental Stock Transfer & Trust put out a press release that should provide some comfort to investors in the current Canna-Global/Liqueous saga. That’s because Continental took the unusual position of backstopping Canna-Global’s trust for the 724,000 shares that were incorrectly issued to Liqueous, and which Liqueous has yet to return.

For those not familiar with the current drama, Canna-Global (NASDAQ:CNGL) had put out an 8-K last Thursday, June 27th, alerting investors that Canna-Global had issued 724K shares to Liqueous, which were then sold by Liqueous in the market despite being unregistered and not freely tradable until post-business combination closing. This had significant implications for Canna-Global shareholders since it reduced the cash-in-trust value of their shares.

If you’re asking why did Canna-Global issue 724K shares to Liqueous, it was because EF Hutton had sold the rights to their $8 million deferred underwriting fee on the transaction and it also came along with an additional 820,531 shares to be issued at a later date. Except what seemed to get lost in translation was that this deferred underwriting liability is contingent on a deal closing. It’s a “success” fee and if a deal doesn’t close, the fee doesn’t exist. To issue freely tradeable shares for an event that may not happen should be an obvious problem.

Despite this, Canna-Global directed Continental, pursuant to written instructions from Canna and a counsel opinion which they were told by the CEO of Canna to rely upon, to issue the new shares. However, this goes against Canna’s charter which prohibits the issuance of free trading stock prior to a business combination.

On Monday, June 24th, both Continental and Canna-Global contacted Nasdaq seeking a halt in trading and a reversal of all trades of those shares. However, trading wasn’t halted until Thursday, June 27th, the same day the company filed an 8-k outlining what had transpired.

To make the situation even more complicated, Canna-Global, rather than demanding return of the shares from Liqueous, attempted to amend its charter to permit the issuance of free trading shares before a closed combination. The amendment was approved by a shareholder vote, but the insiders owned a substantial portion of the voting shares and could control the outcome. Regardless of the vote, it’s not clear that they gave adequate notice to investors, which is required. Basically, rather than try to correct the original mistake, they doubled down.

Nonetheless, the original 8-K from Canna-Global on Thursday, June 27th, mentioned a backstop of the Trust by Liqueous. However, it now appears that’s unlikely since Continental has stepped in to do just that. Today’s press release states, “Continental as trustee has itself agreed to guarantee the payment of full trust value for the 724,000 Class A common shares of Canna-Global in the event of a redemption or liquidation event.”

This should provide some comfort to investors, but it’s doubtful they’re going to feel completely relaxed. After all, it begs the question – could something like this happen again? Never say never, but it’s highly unlikely.  Clearly no one in SPACLand wants to go through this again.  Most likely, procedures have already been put in place to prevent this.

However, the real takeaway from the Canna-Global situation, as well as with some of the other lawsuits this year (Financial Strategies, Industrial Human Capital), it’s important to know and trust your sponsor team.