Enforceable Undertakings given to the FMA
21 January 2021
Re: Enforceable Undertakings given to the FMA
On 22 December, Medical Kiwi advised all shareholders about Enforceable Undertakings which the company has given to the Financial Markets Authority (FMA). These Undertakings recognise misstatements made during our crowdfunding programme in August 2020.
The Board apologizes to Medical Kiwi shareholders for the misstatements and for the need to give these Undertakings, long after the crowdfunding programme. Medical Kiwi is, of course, a substantially more developed Company in 2022 with its Christchurch cannabis cultivation plant now in operation, a new sales agreement in place, an enlarged and experienced Board, and a broad base of local and international investors.
We write to you now as the Board’s next step for immediate fulfilment of the Undertakings.
At this point, the Board provides you with a “Corrections of Statements” immediately below this letter with the full Enforceable Undertakings document contained in this link.
Should any shareholder who invested in Medical Kiwi through the crowdfunding programme now wish to exit that investment, they may do so by taking up a refund offer from the Company. Any eligible shareholder will be paid back the $1 per share purchase price at their request.
The Board welcomes any questions or comments on the Undertakings and/or the share refund offer. The Board welcomes any questions or comments on the Undertakings and/or the refund offer. Please email firstname.lastname@example.org.
Looking ahead, we remain confident in the future growth and success of the Medical Kiwi business. This outlook will be unaffected by the Undertakings and share refund process.
Executive Chair, on behalf of the Medical Kiwi Board
APPENDIX — CORRECTIONS OF STATEMENTS
Medical Kiwi made certain statements at the time of its crowdfunding offer on the PledgeMe website (August/September 2020) that have been the subject of inquiries by the Financial Markets Authority (FMA). The outcome of those inquiries is that that Medical Kiwi has admitted those statements were incorrect or misleading and therefore breached Part 2 of the Financial Markets Conduct Act 2013. Medical Kiwi and the FMA have agreed that Medical Kiwi gives enforceable undertakings in order to address those breaches. The enforceable undertakings are attached in full.
As part of the enforceable undertakings, Medical Kiwi has agreed to issue a correction of the statements in question. The statements and corrections are set out below.
Representation as to licences
In its Information Memorandum (IM) issued as part of the crowdfunding offer, Medical Kiwi made various disclosures in relation to medicinal cannabis licences held, or applied for including:
- “Medical Kiwi is in a unique position as one of a few licensed New Zealand companies…”
- “Since 2018 we have… been granted a licence to cultivate from the Ministry of Health with further licenses pending”
- “Medical Kiwi is positioning itself to manufacture and supply high-quality medicinal cannabis
and CBD products for both the local and international markets once the licenses are granted.”
- “In August 2019, just eight months after being established, we became the first South Island based medicinal cannabis company to be granted a licence to cultivate for research. We’re an applicant for licenses to cover the full range of our activities and anticipate these being granted very soon, now that the Medicinal Cannabis Scheme is operational.”
Medical Kiwi should have but did not qualify the above by noting that the licence that it held at the time: (i) was due to expire on 22 August 2020; (ii) could not be renewed or extended; (iii) was specifically associated with Medical Kiwi’s Brightwater Facility in Nelson and did not apply to operations at its Christchurch Facility; and (iv) was never active as it was conditional on a site inspection which was never completed.
At the time of the IM, Medical Kiwi planned to let the Brightwater licence lapse as that site was no longer part of Medical Kiwi’s immediate plans. Medical Kiwi was in the process of obtaining a new licence in order to retrofit a Christchurch facility. Medical Kiwi’s application was being assessed by the Ministry of Health, and it did not anticipate any issues based on the exchanges with the Ministry to date. The Ministry of Health granted the licence for the Christchurch facility on 3 December 2020.
Medical Kiwi should have made it clear in the IM that its current licence was not yet active and was about to expire, and that its plans were based on the Ministry of Health granting a licence for the Christchurch facility (which had not yet happened). The statement at (a) to (d) above ought to have been amended accordingly:
Medical Kiwi is in a unique position as one of a few licensed New Zealand companies…”
2018, we have been granted alicence to cultivate from the Ministry of Health , with further licenses pending”.
- “Medical Kiwi is positioning itself to manufacture and supply high-quality medicinal cannabis and CBD products for both the local and international markets
once the licenses are granted”
- “In August 2019, just eight months after being established, we became the first South Island based medicinal cannabis company to be granted a licence to cultivate for research.
We’re an applicant for licenses to cover the full range of our activities and anticipate these being granted very soon, now that the Medicinal Cannabis Scheme is operational.”
Representations regarding contractual arrangements
Medical Kiwi made statements in its IM about its supply arrangements including that it had “signed partnership agreements… including pre-selling our entire first two years production worth $90 million to Hektares, a global player in the cannabis industry”. Medical Kiwi repeated the statement about having presold the first two years production throughout the IM.
The arrangement that Medical Kiwi had in place with Hektares was a letter of intention to supply. It was able to be terminated by Hektares. Although Medical Kiwi did not anticipate this at the time of the IM, the parties ended up mutually withdrawing from this arrangement. Medical Kiwi accepts that it ought to have made that risk clearer. For example, rather than stating it had pre-sold production to Hektares, stating that:
Q&A on PledgeMe Campaign Page
On 2 August 2020, Medical Kiwi was asked a question on the PledgeMe Campaign Page:
“Is your purchase agreement binding? I ask this question due to the fact PURO NZ claimed they had purchase agreements and when they came to sell, their agreements were non binding”.
Medical Kiwi responded:
“There’s always a risk that a client will not be able to perform their contractual obligations whether it’s a binding or nonbinding MOU, contract or agreement of any nature. Our team is confident that Hektares have the ability and resources as well as intent to fulfill [sic] their contractual obligations. … More the issue is that Medical Kiwi may not be able to satisfy the demand from Hektares, as reflected in the risk section of our IM. Our IM financials reflect what we believe we can satisfy while also diversifying with other clients to try and mitigate any risk from a single client.”
Medical Kiwi accepts that it should have clearly conveyed that the agreement with Hektares was a letter of intention to supply and was able to be terminated. The answer should have said, for example:
Medical Kiwi unreservedly apologises for the misstatements outlined above.