Medical Kiwi has admitted breaching the fair dealing provisions of the Financial Markets Conduct Act (FMCA) during a crowdfunding campaign last year.
In August 2020, the medicinal cannabis company launched an offer for shares on equity crowdfunding platform PledgeMe which raised NZ$2 million.
But the Financial Markets Authority (FMA) has found the accompanying information memorandum (IM) and campaign page contained false and misleading statements in relation to the firm’s medicinal cannabis licenses and contractual arrangements.
Medical Kiwi stated in the IM that it had a ‘cannabis licence’. However, the licence — to cultivate a prohibited plant for medical or scientific research — expired during the offer period.
The FMA said: “From August 23, during the offer, Medical Kiwi held no licences. The statements were also misleading in that they omitted any explanation of other licences required, but not yet obtained, in order to lawfully produce medicinal cannabis.”
It also found the company made false or misleading references to contractual arrangements with Hektares, a company described in the IM as “a global player in the medicinal cannabis industry”. Medical Kiwi claimed to have a signed partnership agreement for the pre-selling of its entire first two years of production, worth $90 million.
“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 found.
FMA acting general counsel Karen Chang 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 FMCA.
“Crowdfunding issuers cannot leave out essential information or make misleading statements in their offer documents. Investors need high-quality disclosure to be able to make informed decisions and Medical Kiwi has fallen markedly short of the required standards.”
The firm has now given an enforceable undertaking to the FMA under which it will make a payment of $250,000 in lieu of a pecuniary penalty and will offer to refund and exit shareholders who participated in the crowdfunding campaign at $1 per share, the sum originally paid.
The enforceable undertaking includes admission of various breaches and sets out the steps Medical Kiwi must take to improve its governance processes and disclosures.
The regulator acknowledged the company’s cooperation throughout its enquiries, which avoided the need for legal proceedings.
Medical Kiwi’s board issued an unreserved apology for the misstatements and said affected shareholders would be advised of the offer to return their money and the reasons for it in January 2022.
It added: “The company cooperated with those inquiries fully from the outset and it will now move promptly to implement the undertakings.”
“While we acknowledge that the company breached provisions of the FMCA in two areas of information disclosure during our crowdfunding, we note that the Medical Kiwi business and its governance arrangements have moved on a long way since mid-2020.
“For one thing, the company now has six experienced directors. We face the future with confidence and will keep all shareholders well informed on developments.”
In April, the firm, founded and chaired by former Nelson mayor Aldo Miccio, was denied a listing on the NZX while enquiries by the FMA into the crowdfunding campaign were ongoing.