A cannabis company's ambitious plans to buy a Taranaki power plant with investor funds have led to questions about the nature of the deal and the level of information provided to investors.
Cannabis startup Greenfern Industries recently raised more than $2 million from investors via crowd-funding site Equitise, adding to $1.8m that it raised from an earlier round.
In its investment documents the company signalled its intention to put $1m of the fresh capital toward the acquisition and improvement of a small hydroelectric power plant situated in Normanby, South Taranaki.
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What was not disclosed was that the plant is currently owned by Renewable Power, whose major shareholders are also existing Greenfern shareholders with one also a former director.
Companies Office records show Renewable Power is 89.79 per cent owned by Tim Johnson, with Kevin Chong holding 5.13 per cent.
Both men also hold stakes in Greenfern, with Johnson holding 11.95 per cent and Chong 2.76 per cent.
Johnson was listed as a director of Greenfern until vacating the position in February 2019.
Greenfern co-founder and managing director Dan Casey was also listed among the shareholders of Renewable Power until September 29, 2019.
Casey and Johnson have known each other since their high school days in Dunedin and were two of the founding partners of Greenfern.
None of these details were disclosed in the documentation made available to investors on the Equitise site.
The investment documents left an impression the deal for the hydroelectric plant was being made with an unassociated third party, simply saying: "Greenfern has a binding right of refusal in place to acquire the facility".
Following Herald inquiries, the Financial Markets Authority (FMA) said it was looking into the information provided to investors and had made contact with crowd-funding platform Equitise.
"All equity crowdfunding offers are subject to 'fair dealing' requirements in the Financial Markets Conduct Act and issuers using a crowdfunding service must ensure that offer documentation is not misleading or deceptive including by omission," a spokesman from the FMA said.
"We would generally expect material conflicts of interest relating to an equity raise to be disclosed to investors."
Equitise managing director Jonny Wilkinson told the Herald that the crowdfunder wasn't aware of the specifics of the relationship between the two companies and Johnson's prior involvement in Greenfern when the campaign was listed on the site.
"As far as we were aware, the information provided and put together by the company and their lawyers was complete and had all the relevant information incorporated," Wilkinson said.
"Questions around this have come up and been posted in the Q&A section, which the company has answered directly and truthfully."
Wilkinson added Equitise was currently working with the Greenfern team to update the offer information and inform all shareholders.
Asked by the Herald to explain why the related party information was not included in the initial documents, Greenfern's Casey said decisions on what to disclose were made with input from his legal team.
"We take advice from lawyers, obviously, and they didn't ask us to disclose that," he told the Herald.
"Some people could look at that one way or the other, but we are totally transparent about what we're doing."
Pressed on whether investors deserved to know about the close ties between the two companies, Casey acknowledged he may have done things differently if he had to do it again.
"Look, hindsight is a wonderful thing," he said.
"Would we do it differently next time? Potentially. But we can't take that back now."
Casey also added that he had been transparent in answering all questions related to the ownership of the power plant in the Q&A section attached to the campaign posted on the Equitise site.
The Herald has contacted Johnson and Equitise for comment.
Power plant history
Greenfern's justification for pursuing the acquisition of the power plant comes down to the money that could be saved by controlling its power supply.
"Up to 60 to 80 per cent of your expenditure when growing cannabis indoors is electricity," says Casey.
"It's all electricity reliant. You've got all your air conditioning, temperature and environmental controls and it's all under lights."
Casey says that outright ownership means Greenfern would no longer have to pay the $50,000 per annum leasing fee associated with Greenfern's site in Normanby.
A cost analysis provided to the Herald by Casey suggests that some of the energy generated by the power plant could also be sold back to the grid, generating estimated savings of up to $200,000 year.
However, this is all contingent on the price of power in a given year and likelihood of the power station actually operating.
Fred McLay, director of resource management at Taranaki Regional Council, told the Herald the plant in Normanby has not been in operation since the Environment Court issued an enforcement order in 2017.
TRC records show the plant has had eight infringement notices and two abatement notices between 2015 and 2019.
A monitoring report from 2017 shared with the Herald pointed to a number of major maintenance and environmental problems with the power plant.
This included a leaky sluice gate, significant accumulation of debris and an unsecured control valve.
Greenfern's investment documents do note that the power station has lapsed on a number of Resource Management Act indicators but the details of those issues are not fully disclosed.
In its notes the company stipulates that all critical items "have all but been resolved and will be brought back up to standards with compliance approval expected in early September".
Asked whether the necessary consents have been obtained, Casey said the consents were imminent.
"There's an abatement notice out on the current owner because they're in breach of the resource consent, so they technically can't turn the station on," says Casey.
"But the TRC have been there twice in the last two weeks, running the station and doing water monitoring.
"We were hoping that during the crowdfund, we could say yes, all the boxes have been ticked but we're very close."
Casey also added that once Greenfern took ownership, they would call on hydro power station specialist Vortex to assist with the improvement of the plant.
According to Casey, Vortex had already drawn up plans for the improvement and expansion of the plant once ownership changed hands.
Greenfern financial statements show that the company has around $1.1m left from the original $1.8m capital raise.
The statements show that consulting services accounted for the single biggest cost at around $300,000 over 2019 and 2020.
Casey's salary as a director was listed at $49,000 in 2020.
"I still have a day job and so does the other director," says Casey.
"We used consultants for a lot of things: media, PR, land consultants for reports … we also used a company out of Australia for our initial licensing and design.
"I guess if we had full-time employees or someone like me on board full-time, I could take over some of that."
As is the case with all New Zealand startup cannabis companies, the revenue side of the balance sheet remains relatively bare at this stage.
The company registered a loss of $461,000 in 2020.