First cannabis sector casualty

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

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.”