Cannabis company Medical Kiwi declined NZX listing

Cannabis company Medical Kiwi – the subject of “ongoing inquiries” by the financial markets regulator – has been denied a listing on the NZX.

NZ RegCo chief executive, Joost van Amelsfort, responsible for NZX regulation, confirmed the stock exchange has declined Medical Kiwi’s application for a direct listing and determined the company is “not suitable” at this time.

A Financial Markets Authority (FMA) spokesman said its investigations into the company are ongoing.

Medical Kiwi’s chairman and executive director, Aldo Miccio, did not respond to requests for comment.

In making the application last month, Miccio said in a news release he hoped a listing would, “publicly confirm the integrity and credibility of our strategy, and … let the market properly assign value to a business that has substantial growth potential.”

Since last year, Medical Kiwi has been dogged by questions about its credibility.

FMA inquiries began after the firm raised $3 million in equity from investors through the crowdfunding website PledgeMe in August and September.

In an Investment Memorandum intended to guide investors, the company claimed it held a Ministry of Health licence to cultivate cannabis, and that this put it in a “unique position” and gave it an edge over its many competitors.

But after the equity raise the ministry confirmed the licence was never active.

The licence was conditional, and its terms were never met; furthermore, that licence, which the ministry described as “inactive”, expired before the equity raise closed.

Van Amelsfort confirmed NZ RegCo sought general information from the FMA, “on the nature and status of the FMA’s inquiries into Medical Kiwi’s August 2020 crowdfunding capital raise”.

“This was one, but not the only factor” in the decision to decline, he said. “NZ RegCo also considered Medical Kiwi needed to be able to demonstrate a more developed operating model.”

A direct listing involves the listing and quotation of existing securities on the stock exchange, without raising new capital.

Oliver Mander, the chief executive of the New Zealand Shareholders’ Association, said the decision by the NXZ underscores the gulf between the rigorous disclosure rules of the stock exchange and those that apply to crowdfunding platforms.

“In principle, we welcome companies moving on to the exchange where investor protections are much stronger. But of course companies need to meet the standard,” Mander said.

“In this case, unfortunately, it underscores that crowdfunding platforms are not required to provide the same investor protections, despite the fact that we have companies increasingly turning to those platforms and raising capital, often from very inexperienced retail investors.”

Financials in doubt

Medical Kiwi’s crowdfunding campaign was also boosted by a linchpin sales agreement that has since evaporated.

The company’s ambitious valuation of $32.5m before the equity raise was supported by a $90m deal with a little-known Australian company, Hektares.

Miccio said Nelson-based Medical Kiwi had an agreement with Hektares to sell $90m of medical cannabis over three years through 2022.

But this week Hektares chief executive Darren Pike said: “Hektares does not have any agreements or contracts with Medical Kiwi. We also have no commercial arrangements with Medical Kiwi now or in the future.”

In an email exchange on Wednesday, before the RegCo announcement, Miccio declined to answer the Herald’s questions about the Hektares deal.

He said Medical Kiwi is currently “proceeding well with its business development programme” and is cultivating its first crop in a Christchurch facility.

Medical Kiwi is among a large cohort of small pre-revenue medicinal cannabis companies now racing to produce New Zealand’s first domestic crop, including derivatives and extracts. The first home-grown products are expected for sale late this year.

Whether exorbitant company valuations, common in the sector, are born out by revenue and profit remains to be seen. The New Zealand domestic market is tiny. Ministry of Health numbers suggest fewer than 3000 patients use the largely unapproved medicine legally. And while export markets are attractive they are also intensely competitive.

Just two cannabis firms, Cannasouth and Rua Bioscience, have listings on the NZX.

The rules for such companies and the standards for disclosure are much higher than for lightly regulated crowdfunding campaigns.

Board shake-up

Two of Medical Kiwi’s four directors have stood down from the board in recent months. In February, both Dr David Porter and Dr Michael Packer ceased to be directors less than two years after they joined the board in May, 2019, the Companies Register shows.

The pair provided medical and scientific heft to the young company and have been replaced by two new directors. James Gough, a Christchurch city councillor and scion of the wealthy South Island Gough family, joined the board in January. Loren Aberhart-Heaphy, a general manager at ChristchurchNZ, a Christchurch City Council-linked economic development agency, was appointed to the board in February.

Miccio emailed a corporate profile to the Herald that said both Porter and Packer will remain associated with the company in an advisory capacity.

Porter is a practising rheumatologist in Nelson but a voice recording at his practice said he is on leave until the end of the month. He did not respond to the Herald’s requests for an interview.

Packer is a senior research scientist at the Cawthron Institute. He did not return the Herald’s calls.

The corporate profile said both former directors described their move from directors to advisers as “a natural evolution” to make way for “people with greater business and financial expertise while enabling us to focus more on exploring the development of products based on the many different therapeutic qualities of cannabis.”

Miccio's Past

Miccio’s past includes a stint as mayor of Nelson. He is also co-founder and director of New Zealand Coastal Seafoods, which largely sells ling parts to China and is an ASX-traded penny stock. Until December 2019 he was a director and the chief executive of Australian hair jewellery company Kela Charms.

Miccio left the company just weeks before it was deemed insolvent and placed in voluntary administration.

Last year, a report by independent administrator BPS described “significant trading losses” at the firm under Miccio’s management, and revenue that never came close to covering the company’s rising advertising and administration expenses.

The company’s payroll included Miccio and at times his wife, niece and two of his children.

“At no point in KC’s [Kela Charm’s] history was it generating sufficient funds from trading to enable it to service its debts,” the administrator said.

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