First cannabis sec­tor ca­su­alty

Kiwi com­pany Med­i­cann in liq­ui­da­tion as it falls vic­tim in highly spec­u­la­tive sec­tor

Hawke's Bay Today - - Business - Damien Venuto

The highly spec­u­la­tive cannabis sec­tor has claimed its first New Zealand ca­su­alty. Kiwi cannabis firm Med­i­cann, founded in March last year, has been placed into liq­ui­da­tion, with BDO’s Paul Man­ning ap­pointed as the liq­uida­tor. The liq­uida­tor’s first re­port said the com­pany was vol­un­tar­ily placed into liq­ui­da­tion by the share­hold­ers on Novem­ber 12. Speak­ing to the Her­ald last week, Man­ning con­firmed the com­pany would be able to pay cred­i­tors owed money by the busi­ness. The liq­uida­tor’s re­port shows the com­pany owed $43,171 to se­cured cred­i­tors and $3325 to un­se­cured cred­i­tors. Inland Rev­enue was the sin­gle big­gest creditor, with an out­stand­ing bill of $34,064, fol­lowed by staff wages and hol­i­day pay at $9107. Man­ning said sev­eral ad­di­tional cred­i­tors had also to come for­ward, claim­ing they were owed money by the busi­ness. Cur­rent year losses for the busi­ness were $808,859, leav­ing the busi­ness with a sur­plus of $616,141 from its share cap­i­tal of $1.4 mil­lion. A source fa­mil­iar with Med­i­cann told the Her­ald that in­vestors put “just un­der $3 mil­lion” into the busi­ness. The source said that af­ter the le­gal costs and dis­so­lu­tion of the com­pany it was un­likely that in­vestors would be get­ting much their money back. Man­ning would not pro­vide any fur­ther in­for­ma­tion on the case when the Her­ald spoke to him last week and he could not be reached yes­ter­day. The com­pany was orig­i­nally founded by cannabis in­dus­try in­vestor Ross Smith, cannabis seed expert Luc Krol and busi­ness­man Bren­don Ogilvy. The com­pany brought in Dr Franz Stry­dom to serve as the chair­man of the busi­ness. Stry­dom told the Her­ald that he was es­sen­tially caught in the mid­dle of a bat­tle be­tween two fac­tions at the busi­ness. It’s un­der­stood Smith and Ogilvy were at log­ger­heads about key strate­gic de­ci­sions and how the busi­ness should be run. Stry­dom said this made it incredibly dif­fi­cult to ful­fil his role as the chair­man. “My prime con­cern was for the share­hold­ers,” he said. “I was only in­ter­ested in do­ing what was best for them.” Stry­dom said he had se­ri­ous con­cerns about the high salaries some of the ex­ec­u­tives were giv­ing them­selves, par­tic­u­larly given that this came out of in­vestor money. He also said he had no say in the mat­ter when some ex­ec­u­tives de­cided to give them­selves in­creases. Stry­dom says that the liq­uida­tor will be pro­ceed­ing with a High Court hear­ing to de­ter­mine the facts of the case and to de­ter­mine if there was any wrong­do­ing in­volved. He also said he had re­ferred the mat­ter to the Fi­nan­cial Mar­kets Au­thor­ity to in­ves­ti­gate the mat­ter. “I ini­tially ap­proached the Se­ri­ous Fraud Of­fice, but they told me that there wasn’t enough money in­volved and that I should go to the FMA,” Stry­dom says. The en­tire sit­u­a­tion has also weighed on Stry­dom on a per­sonal level, with the doc­tor say­ing he has wor­ried about his rep­u­ta­tion as a gen­eral prac­ti­tioner in the af­ter­math of the Med­i­cann blowout. Stry­dom says he might not have in­vested any of his own money into the busi­ness, but he has put time and en­ergy into it. He says he ini­tially got in­volved be­cause of the in­ter­est­ing op­por­tu­nity it pre­sented to re­search the medic­i­nal ben­e­fits of cannabis. “It has al­ways been where my in­ter­est lies.” Asked for com­ment, Med­i­cann chief ex­ec­u­tive Ogilvy didn’t go into de­tails but con­firmed there was dis­agree­ment be­tween the founders. “[The liq­ui­da­tion] de­ci­sion was largely driven by pay­ing in­vestors,” he said. “This was on the ba­sis that the di­rec­tion of the busi­ness as in­flu­enced by some of the orig­i­nal founders was short-term fo­cused only.” The demise of Med­i­cann in­di­cates the dan­gers of in­vest­ing in highly spec­u­la­tive in­dus­tries. Helius Ther­a­peu­tics ex­ec­u­tive di­rec­tor Paul Man­ning (not to be con­fused with the liq­uida­tor) ad­vised in­vestors to be cau­tious about where they choose to put their money. “En­ter­ing New Zealand’s nascent cannabis in­dus­try is far more com­pli­cated than most peo­ple re­alise,” he said. “The cap­i­tal re­quire­ments are sub­stan­tial and gain­ing a li­cence is a rig­or­ous, in­tri­cate process.” Man­ning also pre­dicted that there would be more fail­ures on the hori­zon. “It’s ex­cit­ing to see a num­ber of com­pa­nies emerge, and some of the op­er­a­tors look good, but sadly I sus­pect we’ll see many fail be­fore the reg­u­lated mar­ket goes live.”

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