Capitalraise marked by disclosure issue
NEW PLYMOUTH: A cannabis company’s ambitious plans to buy a Taranaki power plant with investor funds have led to questions about the nature of the deal and the level of information provided to investors.
Cannabis startup Greenfern Industries recently raised more than $2 million via crowdfunding site Equitise, adding to $1.8 million raised from an earlier round.
In its investment documents, the company signalled its intention to put $1 million of the fresh capital towards acquiring and improving a small hydroelectric power plant in Normanby, South Taranaki.
What was not disclosed was that the plant is owned by Renewable Power, whose major shareholders are also existing Greenfern shareholders, one also a former director.
Companies Office records show Renewable Power is 89.79% owned by Tim Johnson, with Kevin Chong holding 5.13%.
Both men also hold stakes in Greenfern, Johnson holding 11.95% and Chong 2.76%.
Johnson was a director of Greenfern until February 2019.
Greenfern cofounder and managing director Dan Casey was also listed among the shareholders of Renewable Power until September 29, 2019.
Casey and Johnson have known each other since their high school days in Dunedin and were two of the founding partners of Greenfern.
None of these details were disclosed in the documentation made available to investors on the Equitise site.
The investment documents left an impression the deal for the hydroelectric plant was being made with an unassociated third party, simply saying: ‘‘Greenfern has a binding right of refusal in place to acquire the facility.’’
Following Herald inquiries, the Financial Markets Authority (FMA) said it was looking into the information provided to investors and had contacted Equitise.
‘‘All equity crowdfunding offers are subject to ‘fair dealing’ requirements in the Financial Markets Conduct Act and issuers using a crowdfunding service must ensure that offer documentation is not misleading or deceptive, including by omission,’’ an FMA spokesman said.
‘‘We would generally expect material conflicts of interest relating to an equity raise to be disclosed to investors.’’
Equitise managing director Jonny Wilkinson told the Herald the crowdfunder was not aware of the specifics of the relationship between the two companies and Johnson’s prior involvement in Greenfern when the campaign was listed on the site.
‘‘As far as we were aware, the information provided and put together by the company and their lawyers was complete and had all the relevant information incorporated,’’ Mr Wilkinson said.
‘‘Questions around this have come up and been posted in the Q&A section, which the company has answered directly and truthfully.’’
Equitise was working with the Greenfern team to update the offer information and inform all shareholders, he said.
Asked by the Herald to explain why the related party information was not included in the initial documents, Greenfern’s Mr Casey said decisions on what to disclose were made with input from his legal team.
‘‘We take advice from lawyers, obviously, and they didn’t ask us to disclose that. Some people could look at that one way or the other, but we are totally transparent about what we’re doing.’’
Pressed on whether investors deserved to know about the close ties between the two companies, he said: ‘‘Look, hindsight is a wonderful thing. Would we do it differently next time? Potentially. But we can’t take that back now.’’
He said he had been transparent in answering all questions related to the ownership of the power plant in the Q&A section on the Equitise site.
The Herald has contacted Johnson and Equitise for comment.
Greenfern’s justification for wanting to buy the power plant was the money that could be saved by controlling its power supply.
‘‘Up to 60 to 80% of your expenditure when growing cannabis indoors is electricity,’’ Mr Casey said.
He said outright ownership meant Greenfern would no longer have to pay the $50,000 per annum leasing fee associated with Greenfern’s site in Normanby.
A cost analysis he provided to the Herald suggests some of the energy generated by the power plant could be sold back to the grid, generating estimated savings of up to $200,000 year.
However, this is all contingent on the price of power in a given year and likelihood of the power station actually operating.
Director of resource management at Taranaki Regional Council Fred McLay told the Herald the plant in Normanby had not been in operation since the Environment Court issued an enforcement order in 2017.
TRC records show it had eight infringement notices and two abatement notices between 2015 and 2019.
A monitoring report from 2017 pointed to major maintenance and environmental problems with the power plant, including a leaky sluice gate, significant accumulation of debris and an unsecured control valve.
Greenfern’s investment documents do note that the power station has lapsed on some Resource Management Act indicators but the details are not fully disclosed.
In its notes, the company stipulates that all critical items ‘‘have all but been resolved and will be brought back up to standards with compliance approval expected in early September’’.
Asked whether the necessary consents had been obtained, Mr Casey said they were imminent.
‘‘There’s an abatement notice out on the current owner because they’re in breach of the resource consent, so they technically can’t turn the station on. But the TRC have been there twice in the last two weeks, running the station and doing water monitoring . . . we’re very close."
He also said once Greenfern took ownership, it would call on hydro power station specialist Vortex to help improve the plant.
Greenfern financial statements show that the company has about $1.1 million left from the original $1.8 million capital raise.
The statements show that consulting services were the biggest cost at about $300,000 over 2019 and 2020.
Casey’s salary as a director was listed at $49,000 in 2020.
‘‘We used consultants for a lot of things: media, PR, land consultants . . . I guess if we had fulltime employees or someone like me on board fulltime, I could take over some of that.’’
As with all New Zealand startup cannabis companies, the revenue side of the balance sheet remains relatively bare at this stage. — The New Zealand Herald