Cannabis licence was ‘never active’
AUCKLAND: A medical cannabis company which raised millions of dollars from investors while touting its Ministry of Health authorisation never had an active licence, and the licence it did have expired while the company’s August and September fundraising efforts were ongoing.
In an investment memorandum required by regulators for Medical Kiwi’s recent crowdfunding campaign, company founder and chairman Aldo Miccio claimed the company was in a ‘‘unique position’’ as ‘‘one of the few licenced [sic] New Zealand companies poised to create value . . .’’
The document stated the company received provisional approval for a research licence in June, 2019 and it was granted a licence to cultivate a prohibited plant in August of that year.
The licence was for research purposes and was described as a ‘‘milestone’’, apparently aimed at convincing investors the company had experience that would help it succeed in a heavily regulated industry, especially in light of the numerous further licences the company’s plans require.
However, the Ministry of Health described the Nelson startup’s single licence differently. The ministry confirmed Medical Kiwi had had only one cannabis licence issued to it, R1451000500, and the licence was ‘‘never active’’ for cultivation.
‘‘The conditional licence was issued for the cultivation of cannabis for the purpose of medical or scientific research, with activities not able to commence until certain conditions were complied with. However, the conditions of the licence were not completed so the licence was never active for the cultivation of cannabis or for any other purpose,’’ a ministry spokesman said.
In addition, the inactive licence had expired on August 22, 2020.
On August 28, Medical Kiwi closed a $2 million equity raise through the platform PledgeMe. Thereafter it continued to solicit equity funding of a further $1 million from wholesale investors, a restricted group considered to be experienced. The licence expiry was not disclosed in the investment memorandum; neither was the licence’s earlier status as conditional and not active.
Under New Zealand rules, $2 million is the maximum a company is allowed to raise through crowdfunding in a 12month period, because investors reached through such platforms are typically inexperienced and because only light disclosure rules apply to the companies raising money.
Earlier this week, Mr Miccio was asked by email what current licences the company holds. He did not reply. However, the company’s Christchurch general manager Jason Whitelay responded.
‘‘Medical Kiwi has a research and development licence (licence number R1451000500) from the Ministry of Health,’’ he wrote in an email. In later communication he said the licence was superseded by The Misuse of Drugs (Medicinal Cannabis) Regulations 2019.
Regulator steps in
A Financial Markets Authority (FMA) spokesman said the regulator was ‘‘assessing’’ the information Medical Kiwi provided to investors.
Any offer information provided, or statements made by an issuer making an offer through a licensed crowdfunding provider was covered by the ‘‘fair dealing’’ provisions of the Financial Market Conduct Act.
‘‘This means that all information and statements must be accurate, not misleading (including by omission), and able to be substantiated,’’ the spokesman said.
New Zealand Shareholders’ Association chief executive Michael Midgley said ‘‘I would have thought the fact that a licence has expired was a material fact that they ought to have disclosed in my view’’. ‘‘This is fundamental stuff.’’ The fact the licence was never active ‘‘also appears to me to be fundamental and material’’, he said.
Companies are required to disclose material information when raising money in order to avoid misleading prospective investors, and crowdfunding platforms such as PledgeMe are licensed by the FMA.
PledgeMe chief executive Claire McGowan said the company did not review a copy of Medical Kiwi’s licence.
‘‘Under the regulations of the Financial Markets Conduct Act, we require all campaigners to not be ‘false and misleading’ which means confirming that they can provide proof for all statements of fact if requested,’’ she said.
Medical cannabis was legalised in New Zealand in December, 2018, but domestic production remained very restricted. In 2019, a handful of companies were issued licences to conduct research and development, conditional on meeting strict terms.
This year, the Government began issuing licences that cover medicinal cannabis cultivation and possession for manufacture. Such commercial activity, however, also requires a slew of other certifications including those for manufacturing standards and licences for export if that is anticipated (the domestic market is currently tiny).
Former mayor’s involvement
Mr Miccio, who is a former Nelson mayor and promotes both his business expertise and governance experience, is also embroiled in a dispute with Australian companies Kela Holdings and Kela Charms (Kela Holdings owns the trading company Kela Charms).
Mr Miccio was director and chief executive of Kela Charms from 2017 until December, 2019. He says he resigned before the companies sought voluntary administration.
A February report by the independent administrator, BPS, said ‘‘it is our opinion’’ that a dispute between management and officers of the company contributed to the firm’s failure. It also cited the company’s ‘‘significant trading losses’’ that were unable to be met by continued shareholder capital injections and or loans.
Kela’s revenue never came close to covering its rising advertising and administration expenses, the administrator said.
‘‘At no point in KC’s [Kela Charm’s] history was it generating sufficient funds from trading to enable it to service its debts.’’
Creditors of the companies were expected to recover between 14 cents and 25 cents on the dollar, the administrator reported. The company was reorganised under a deed of company arrangement and remains a going concern.
Ambitious forecasts
Meanwhile, Medical Kiwi has some ambitious forecasts, Mr Miccio promoting a $90 million deal to sell dried cannabis over the next two years to a company called Hektares, but the details are scant.
Medical Kiwi estimates it will have a leased Christchurch facility, licensed and with cannabis growing under way, by the middle of next month. It says the licences it requires for this activity have not yet been issued.
It describes Hektares as a ‘‘global player in the medicinal cannabis industry’’.
While Medical Kiwi’s current sales are zero, it forecasts the Hektares deal will drive sales of $23.58 million in 2021, and that sales will continue to rise dramatically in years thereafter.
Hektares is opaque in its structure. Singapore’s Accounting and Corporate Regulatory Authority records show Hektares SG Holdings is a private company, established in August, 2019. It does not appear to be a trading company; its ‘‘principal activities’’ are listed in the authority’s records as ‘‘other holding companies’’. It is owned by Australian company Hektares Investments Pty Ltd, Singapore records show.
Neither company has a website, and no details of any commercial transactions or operations are apparent on the public record.
Hektares Investments is owned by Frederick Industries Pty Ltd and Mrs Bruce Pty Ltd, respectively owned by Christopher Frederick, of New South Wales, and Bruce Donald Ring, of Victoria, Australian Securities and Investments Commission records show.
None of the company shareholders or directors appear to have any significant business profile in medical cannabis or related industries.