Squabbles and gossip seem to plague the sunrise pharmaceutical industry – why?
Analysis: Earlier this year yellow dossiers were delivered to media outlets and medical cannabis firms - the contents targeting the head of a South Island start-up.
Highlighted in yellow and pink, the contents of the mustard envelope ran through who Greg Marshall - the executive director of Mataura cannabis business Southern Medical - was, and his past as a fund manager.
The information, all publicly available, included a liquidators' report, a three-decade-old ASIC penalty, and, reportedly read out loud in a Cayman Islands courtroom, alleged threats against a divisive investment banker.
On the surface, the dossier seems like a one-off, but while the motivations are unclear, it’s unfortunately typical of the young industry that is having a harder-than-expected time actually making some money, let alone the millions expected.
Inquiries around the dossier lead to a Twitter page, describing itself as “spilling the beans on New Zealand’s cannabis scene”, which mentioned the dossier in a post made in June.
‘Spilling the beans’ ranged from genuine criticism of Ministry of Health regulations and sector valuations through to unsubstantiated claims, some requiring a team of lawyers to repeat.
There is unrest playing out beyond social media and anonymous mail. A founding director of NZX-listed Greenfern, Tim Johnston, who left the business in its early days after unsavoury private comments leaked to media, formed a shareholder activist group called Greenfern Watch.
The crux of the two-member shareholder activist group’s claims is that Greenfern’s small hydropower plant, which it uses to generate electricity for its growing operation, isn’t actually working.
Greenfern’s chief executive Dan Casey said he had already had to engage with the NZX’s regulator on that allegation and there was nothing more to it than a disgruntled ex-business partner and shareholder who was upset about the dilutionary effects of its recent capital raise.
Other examples of fighting and angst range from the sustainability of different business models (vertical integration versus value add) to shareholder complaints.
Obviously, an overwhelming majority of the industry is just getting on with it, as the Medicinal Cannabis Council was keen to point out when a few of these issues were raised, but why are some on the fringes fighting like cats in a bag?
Great expectations
An easy conclusion to draw is that the sector isn’t going entirely as planned, evidenced by lofty early forecasts that haven’t come anywhere close to fruition.
The examples below are selected because the businesses, though central to the industry and not ones prone to smack-talking, have publicly available information that shows a disjoint between initial expectations for the industry and reality from both investors and operators.
An information memorandum put out for a 2018 crowdfunding round by Hikurangi Cannabis Company, now Rua Bioscience, raised millions forecasting a profit of $5.8m for the year ending March 2022.
Those forecasts, based on a non-binding letter of intent to supply with a US company that didn’t eventuate, were ditched before its 2020 IPO on the NZX, but it achieved an $8.6m loss in its 2022 financial year.
Similarly, a document put out by Greenfern in August 2020 to raise money forecasted for revenue of $7.9m in its 2022 financial year and $28.8m in 2023.
Those figures were ditched for its 2021 IPO and it generated a loss of $1.95m in its 2022 financial year.
Record-breaking 2019 crowdfunding by Marlborough-based Puro forecasted for revenue of $37.6m in 2022. These figures were ditched in its 2021 crowdfunding.
Interestingly the information memorandum for Puro's raise included research by The AgriBusiness Group that concluded if 1 percent of those who could benefit from medical cannabis in New Zealand used it, the market could be worth $379m each year.
That means that if 100 percent of New Zealanders who could benefit from cannabis used it, it would be worth $38 billion, or something like a whopping 12 percent of the country’s total gross domestic product that year.
The disjoint could be put down to a tough regulatory regime currently being reviewed by the Government’s Medical Cannabis Agency, pandemic disruption or simply overly optimistic forecasts based on deals that weren’t set in stone.
Perhaps related is that availability of capital in the space, needed to fund the final mile to bring products to market, is also thinning, though Bay of Plenty firm Eqalis recently bucked that trend with a $6m raise.
However, positivity and support is still present, with Central Government and agency Callaghan Innovation having shown commitment to funding and supporting research in the space, with the Minister for Agriculture comparing the fledgling industry to the beginning of New Zealand’s wine sector.
