The seemingly endless money flow appears to be drying up for the New Zealand medical cannabis industry as the tough regulatory environment stretches timeframes and tests investor patience

On Monday, publicly listed Taranaki medical cannabis company Greenfern closed out a capital raise with $1.74 million of the $5m it had the ability to raise, with the proceeds to go towards working capital requirements and expanding its cultivation facility as it worked towards meaningful revenue.

Similarly, its listed peer Cannasouth closed out a raise in September with $3.2m of the $4.1m it had sought.

Both companies have been burning through cash quickly and relying on capital raises to fund the necessary work to get their products to patients and begin making money.

The turnouts are a far shot from the fanfare and investor support when medical cannabis first hit New Zealand’s stock exchange in 2019, with Greenfern’s chief executive acknowledging investors were having to be much more patient than expected with unprecedented regulatory hurdles.

In 2019, Cannasouth generated $10m from investors in its IPO and a year later East Coast firm Rua Bioscience raised $20m in its IPO.

Greenfern was the last medical cannabis company to join the exchange, raising no cash in a 2021 listing following a couple of successful crowdfunding and wholesale rounds which brought in around $7m.

None of the companies offered earnings guidance on joining the exchange, but evidence quickly emerged there was limited investor understanding of what it took to get a pharmaceutical company off the ground.

Cannasouth’s stock price was essentially cut in half after it announced a $1.5m first-half loss in August 2020, driven by capital and operating expenditure as it worked towards generating revenue.

Long road

Speaking to Newsroom, Casey said while he was happy with the amount the company had received from existing investors and Sharesies users, it had been a long road to a positive revenue stance for a lot of companies.

“That’s probably due and in part to the really stringent laws that have been written by the Ministry of Health’s Medicinal Cannabis Agency.”

The main standard giving the industry the most grief is called Loss on Drying, a standard controlling the moisture in cannabis the companies are cultivating in New Zealand which is currently up for review.

The three listed cannabis companies have all begun selling imported products or products made from imported ingredients to bring in revenue in the meantime.

Greenfern even managed to generate $100,000 in income from selling branded products in Australia in the past month.

Taranaki-based Greenfern listed on the NZX in 2021. Photo: Supplied

Casey believes once the regulatory pain points were smoothed out it would pick up the industry across the board, “That would get investors I believe, a little bit more inclined to look into putting money into these businesses.”

New Zealand Medical Cannabis Council chief executive Sally King said the regulatory review was expected to land this month, but it had been pushed back before.

“Everyone’s been a bit on tenterhooks waiting to see what the proposals might look like, where the flexibility might be and then once we see it, we can take a position back to the agency saying, hey, this works, or this doesn’t and this is why.”

She rightly pointed out the tightening availability of funds at the moment was reflective of the wider economy rather than just cannabis.

Long term

“Overall the investors are still supporting and continuing to invest in [the industry]. It’s a slower time frame than anyone wished for and nobody knew it at the time, but I don’t see it as exceptional.”

King said the long-term prospects of the industry were strong.

The risky nature and small size of New Zealand’s cannabis businesses means there is no real institutional interest and the cashed-up long-term approach that comes with it, in the space.

“When you get the regulation set right, you’ll see some significant shift in the market in terms of the sentiment as well.”

Like King, Cannasouth chief executive Mark Lucas pointed to the inflationary and geopolitical environment as being the driver of slower investment into cannabis and said he was pleased with the level of support. 

“It’s a very difficult time for any company to raise capital at the moment.”

“We’ve got our main facility operational now and outputting material, it’s a commercial scale facility as well, it’s not a tiny little facility. The main thing for medicinal cannabis companies now is to actually start generating revenue.”

With products in market, Cannasouth’s next move is commercialising cannabis flower sales, “We believe we will continue to maintain shareholder support as we move through that next phase.”

Andrew Bevin is an Auckland-based business reporter who covers major industries, markets, regulation, aged care and fisheries.

Leave a comment