Cannabis chaos: Medical Kiwi’s ‘challenges’ leave staff unpaid, shareholders ‘devastated’

Saturday, 30 November 2024

Staff at Christchurch medicinal cannabis outfit Medical Kiwi Ltd claim they were paid late or not at all for months before it entered administration, leaving thousands of shareholders 'devastated', and the company facing claims of unpaid bills and empty promises about investment, profits and expansion.

Medical Kiwi, also known as Aether Pacific Pharmaceuticals, was placed in voluntary administration last week. In a letter to shareholders it cited “significant financial challenges”, including “difficulty collecting outstanding accounts receivable, a shortfall in funding from an investor, and delays caused by the ongoing impacts of the current financial climate”.

But former employees, contractors and investors tell a different story of a company they say was mismanaged, that failed to secure industry accreditation and stockmarket listings and continually reassured stakeholders that things would get better. “They’ve got a lot to answer for,” one former employee said, adding he was moving out of the house he had just bought and renting it to pay the mortgage. “They’ve ruined a lot of lives.”

A statement sent to The Press by executive chairperson Aldo Miccio, on behalf of the board of directors, blamed the company’s Christchurch-based senior management team for the company’s challenges, saying they had “not met the expectations set by the board”.

“While we understand there is significant public and stakeholder interest, the board is bound by contractual obligations that prevent the discussion of employee-related matters.”

A creditors meeting had been scheduled for Monday, and would include discussion about possible new funding through a Deed of Company Arrangement, the statement said.

“We recognise that this is a difficult and uncertain time for everyone involved. The board remains committed to navigating these challenges responsibly and transparently, ensuring the best possible outcome for all stakeholders,” it said.

Founding director Peter Win said in a text message he had re-invested $450,000 in the company from a share sale that netted him and Miccio $1.08 million each in 2021, and sold a boat he had subsequently bought. Offloading the boat allowed him to not receive a salary for more than a year, he said. He also owns a property in central Nelson with a rateable value of $1.2m, which he bought after the share sale.

A current staffer, who asked to remain anonymous, said Miccio and Win had been “respectful and kind and their own livelihoods have suffered as they desperately have tried to rescue the situation” for investors and creditors. They suggested blame for the company’s problems lay elsewhere.

However, numerous former directors of the company were critical of Miccio and Win. Christchurch businessman Jason Whitelaw, said he had lost millions of shares and was hundreds of thousands of dollars out of pocket. “I couldn't have done more for that company than I did,” he told The Press. “I’m looking forward to a very thorough investigation of what’s gone on.”

A document published on the Companies Register in July showed Medical Kiwi had about 1000 shareholders. Some were institutional investors with significant stakes but most were individuals, holding as few as 500 shares. One major shareholder said they faced losing their lifesavings and their daughter’s $50,000 house deposit. “I haven’t told her,” they said. “I don’t know how I’m going to tell her. It’s horrendous.”

Medical Kiwi Ltd was formed in 2018 as a “medicinal research and nutraceutical wellbeing company”. Within a year, it had obtained a cannabis cultivation licence from the Ministry of Health and a suite of local and international investors. In 2020, it announced a $90m deal to supply Australian company Hektares.

But by 2021 it was encountering problems. It was denied a New Zealand stock exchange listing and fined $250,000 by the Financial Markets Authority after it made misleading statements in a share offer on equity crowdfunding platform PledgeMe, including about the Hektares agreement, which was only a non-binding letter of intent. In shareholder updates, the board repeatedly said GMP (good manufacturing practice) certification was close, including as recently as its October newsletter: “We expect this to be in February [2025]”. GMP is recognised globally in the cannabis cultivation industry, would have unlocked greater investment and production capacity for Medical Kiwi, and allowed it to command a higher price for its product.

Several staff told The Press the delays were due to under-investment. “From what I've heard,” one said, “To get GMP … it’s like seven full-time workers. For ages we had one, then we moved up to two and then we took someone from cultivation to make it three.” Another said: “It didn’t happen because they didn’t have money to pay for the testing.”

On top of that, staff spoke of being unable to buy gloves, toilet paper or basic personal protection equipment or doing so out of their own pocket. Temporary workers hired to help with harvest were paid late or not at all. “To this day I’ve still got people messaging me, ‘Is my money coming?’” one former employee said. “Contractors [also] started rocking up and asking for money. That was probably a year ago.” One contract worker confirmed this, saying they were routinely paid three months late. The motor on the gate to the company’s growing facility in Wigram broke down last year 2023. It is still not fixed and the entrance is secured by padlock.

Almost all former staff, contractors and directors spoken to by The Press requested anonymity. Many said they still hoped to recover something of what they were owed and spoke highly of their colleagues. “I loved the people I was working with,” one said. “I just didn't like the people running it.”

For many of them, payroll issues were the final straw. Numerous staff said the payment problems started in the middle of this year. “At first just a day late,” one said. “One day turned into we might need to wait until Friday. Then that turned into next Friday. The longest we went was about a month.”

One by one, they left. Most staff were based at the growing facility, but some were at the Pain Clinic in Merivale, which provided patients with medicinal cannabis for pain relief.

(Pain Clinic New Zealand Ltd is a separate company, not in administration or liquidation. Miccio and Win are its directors. Another subsidiary, Hardie Health Ltd, also owned by the pair and which holds at least one patent for “botanicals native to the Pacific region”, was placed in liquidation last week.) According to Medical Kiwi’s draft annual report for 2022-23, in which it incurred a $5.8m loss (and following a $7.8m loss in the 15 months to June 2022, which prompted the company’s auditors to issue an “adverse opinion” and resign), almost all of the company’s revenue came through sales at the Pain Clinic ($453,408).

But the shopfront still didn’t turn a profit. “The whole time [the Pain Clinic] was only providing medicinal cannabis telehealth consultations,” one former worker said. “You can do that anywhere … leasing a physical space was ridiculous. [The Merivale site] wasn’t cheap and they were paying a fixed-term lease on it. That was sinking a lot of money.”

Administrator Damien Grant of Waterstone Insolvency said more would be known after the Medical Kiwi creditors meeting on Monday, including whether the operation could be salvaged in any form. “We’re looking for somebody in that space. We are talking to a couple of people. We would like to talk to more people.”

Medicinal cannabis was a nascent industry, he said. Prospective buyers for Medical Kiwi’s assets were limited. This included about 500kg of harvested cannabis, which would have to go to a wholesale buyer. Medical Kiwi’s medicinal cannabis licence expires on Monday, precluding any chance of a retail sale.

“Part of the problem is this is a market that a lot of people rushed into,” Grant said. “And the demand has not caught up with the supply.”