Cannasouth ($CBD) claimed to be New Zealand’s biggest medicinal cannabis company. Now, it’s in voluntary administration. Video / Carson Bluck
The first medicinal cannabis company to list on the New Zealand Stock Exchange may have smoked its chances of success just as it began making millions.
Cannasouth ex-chief executive Mark Lucas, who owned about 8 per cent of the company, resigned last week after the board called in administrators to sort out the firm’s future.
He says it was over a funding gap after an attempt to raise $5 million on the sharemarket late last year failed, and there was misalignment among shareholders and directors over new financing options.
The company told investors it expected to be cashflow positive this financial year, after selling about $1m worth of its certified medicinal cannabis products on the market in the past six months.
“To get to this point, to get so close, it’s just heartbreaking for everybody, but that’s business unfortunately, it’s a hard, hard world out there,” he told Markets with Madison in an extended interview.
Cannasouth shares were worth less than 10 cents, with a total market capitalisation of $32.38m on the NZX, when it entered administration on March 28. Its shares have since suspended trading.
Appointed administrator from Blacklock Rose, Ben Francis, said it was working on a proposal to put in front of shareholders.
“That proposal means continuing the business in some reduced format, so that ultimately value can be returned back to shareholders,” Lucas said.
He hoped a competitor would consider acquiring it.
“There’s so much opportunity there. The big challenge in this business is ultimately getting to the start line; the time and investment it takes to build compliant facilities, that are pharmaceutical GMP standard, to then take products and get them verified, to get them onto the market, is just unbelievable.”
Cannasouth ex-chief executive Mark Lucas says the company failed over a funding gap. Photo / Alan Gibson
Cannasouth listed in 2019, after cannabis was legalised for medicinal use in 2018, but before legalising recreational use was rejected in the 2020 general election referendum.
Lucas said Cannasouth always claimed to be a medicinal manufacturer only, so did not intentionally excite investors about other prospects.
He had, however, hyped the potential for market growth domestically, telling Cannasouth investors on a call in November that he expected the domestic market to double in size in the next 12 months.
His evidence for that call came from Australia’s medicinal cannabis regime.
“The growth is undeniable in Australia, you can look at the growth here in New Zealand and you can see it following the same trajectory.”
Cannasouth was the first cannabis company to list on the New Zealand Stock Exchange in 2019, following legalisation of medicinal use but prior to the referendum rejection of recreational legalisation.
Data obtained by the industry from the Ministry of Health (MOH), released by the NZ Drug Foundation, suggested 266,700 New Zealanders used cannabis for medicinal purposes, however just 16,000, 6 per cent, of those users were accessing it through the legal regime.
Cannasouth was one of about 40 companies with a licence from the MOH’s Medicinal Cannabis Agency to cultivate or manufacture medicinal cannabis to sell to more of those users.
“It is about transitioning those patients through,” Lucas said.
However, price and doctor resistance to prescribing cannabis were keeping patients in the black market, he explained.
“It’s real, it happens,” he said of the latter issue.
Cannasouth planned to bring new products to market over the coming months, following its merger with Bay of Plenty cannabis company Eqalis last year for $48.8m, Lucas said.
He had his fingers crossed it could continue to do that for patients and shareholders, although, admittedly without him at the helm.
“Hindsight is a wonderful thing, but cash is king.”
Watch Lucas discuss what could be next for the cannabis company in today’s episode of Markets with Madison above.
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Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
