Medical cannabis company to pay $250,000 and offer to refund investors after misleading statements

Wednesday, 22 December 2021

Nelson-based medicinal cannabis company Medical Kiwi has admitted making false and misleading statements when raising money from investors.

It has also agreed to refund any investors who want their money back.

The misleading statements were made in August last year when Medical Kiwi launched an offer of shares on the equity crowdfunding platform PledgeMe, according to the Financial Markets Authority Te Mana Tātai Hokohoko (FMA).

The company, which sold $2 million-worth of shares in the offer, admitted breaching the fair dealing provisions of the Financial Markets Conduct Act, the FMA said.

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Medical Kiwi told investors it had a “cannabis licence”, but that licence, which allowed Medical Kiwi to cultivate a prohibited plant for medical or scientific research, was due to expire and did expire during the share offer, the FMA said.

The offer period was from August 17 to August 28, and Medical Kiwi’s licence expired on August 22.

From August 23, Medical Kiwi held no licences.

The information given to investors was also misleading because it did not explain the other licences the company would need in order to lawfully produce medicinal cannabis, the regulator said.

Medical Kiwi did not have these licences.

Medical Kiwi had given an enforceable undertaking to make a payment in lieu of a pecuniary penalty in the sum of $250,000, the MFA said.

‘Investors need high quality disclosure to be able to make informed decisions and Medical Kiwi has fallen markedly short of the required standards,’ says Karen Chang, FMA acting general counsel.

It would also offer to refund and exit shareholders who participated in the crowdfunding offer.

Medical Kiwi also misled investors by claiming to have a signed partnership agreement with a company called Hektares for the pre-selling of its entire first two years of production, worth $90m.

However, Medical Kiwi’s contract with Hektares was only a letter of supply intent, which was non-binding, and contained a clause which enabled Hektares to terminate immediately, the FMA said.

Karen Chang, FMA’s acting general counsel, said: “Equity crowdfunding has a lower level of required disclosure than the large companies on the sharemarket, but investors are still protected through the fair dealing provisions of the Financial Markets Conduct Act.

“Crowdfunding issuers cannot leave out essential information or make misleading statements in their offer documents.

Chang acknowledged Medical Kiwi’s cooperation throughout the regulator’s enquiries, avoiding the need for legal proceedings.

Medical Kiwi’s board said it unreservedly apologised for “misstatements” in its equity crowdfunding.

It said since the crowdfunding, the company had raised more capital, established a medicinal cannabis-growing operation and agreed terms for export of dried cannabis flowers to a buyer in Germany.

The company said it would advise investors of the right to get their money back in January.

The company has agreed to create policies and practices that provide proper governance of disclosure, and to have them reviewed for compliance by an independent consulting firm.

And, if the company seeks to list its shares on a licenced market like the NZX sharemarket, it must wait until its shares have been quoted for at least nine months before undertaking a “same class” offer, which allows listed companies to raise capital with reduced disclosure requirements.

Medical Kiwi did try to list its shares on NZX earlier this year, but was told not to apply until after the FMA had finished its investigation.