Cannasouth opts to pay back wage subsidy after $6m capital raise

Cannasouth chief executive Mark Lucas. Photo / NZ Herald.

Cannasouth, the medicinal cannabis company that successfully raised $6 million from the market this week, said it would pay back the $85,000 it received under the Government's wage subsidy scheme.

The company, which listed on the NZX last year, said that on April 1, Cannasouth Plant Research New Zealand Ltd (CSPRL) applied for and was subsequently granted, $85,726 through the Government's Wage Subsidy Scheme.

The scheme is aimed at supporting employers who have been adversely affected by Covid-19, so that they can continue to pay their employees.

To be eligible for the wage subsidy businesses must declare that they have had a 30 per cent revenue drop due to the pandemic and that will retain named employees for at least the duration of the subsidy.

Early this week, Cannasouth raised $6 million from its share purchase plan to accelerate its growth plans, including a new supply deal for "white label" cannabis.

CSPRL, which is 100 owned by Cannasouth Ltd (CBD), had been generating revenues, it said.

"When CSPRL ceased operations at the Waikato Innovation Park, Hamilton during the Covid-19 level 4 lockdown, it was unable to continue with its revenue-generating activities. Some research activities were also negatively impacted.

"Other companies within the Cannasouth Group did not apply for the subsidy. CBD [parent company] and Cannasouth Cultivation Ltd [50 per cent owned] did not meet the criteria, and Midwest Pharmaceutics NZ Ltd [60 per cent owned] revenues have increased as recently reported to the market.

"CSPRL met the criteria for the Government's wage subsidy and applied for, and used it appropriately.

"While CSPRL still meets the criteria for the subsidy, following the overwhelming success of the capital raising the board has resolved to withdraw the application for wage subsidy and repay the funds to the Ministry of Social Development and is currently investigating the process for doing this."

In its capital raising, the biopharmaceutical research and development company sold 15.8 million shares at 38 cents apiece, a 20.7 per cent discount to the five-day volume-weighted average price.

Cannasouth's shares last traded at 49c.

The original SPP, announced on April 15, aimed to raise up to $5m from existing shareholders.

The company, headed up by chief executive Mark Lucas, also announced it has entered into a supply agreement with MediPharm Labs Australia, a subsidiary of Canadian company MediPharm Labs, for the supply of "white label" medicinal cannabis products into the local market under the newly announced New Zealand Medicinal Cannabis Scheme.