A cannabis research and development company is hoping to raise up to $10 million and list on the sharemarket in what would be the first initial public offer in two years.
Despite a booming sharemarket over recent years, the NZX has been in a listing drought. That deepened this week after Vodafone New Zealand was sold to Infratil and Brookfield Asset Management, rather than coming to the market.
But Cannasouth, a biopharmaceutical company based at the Waikato Innovation Park in Hamilton, is hoping to break the dry spell with a capital raise and listing on June 19.
The highly speculative company has yet to pull in any revenue and has no financial forecasts of its earnings potential, although it has put an implied enterprise value of $40m on the business and a potential market capitalisation of between $46m and $51m.
Chief executive Mark Lucas said it was an unusual situation for a company to list without having any revenue stream but he was banking on investors seeing the potential.
"As an industry, medicinal cannabis research is still in its early stages, and there has been significant interest from the public to invest in the sector," he said.
• Jetpack maker Martin Aircraft thuds to Earth
"Globally, the market is moving ahead at a rapid pace and we believe New Zealand is well positioned to play a significant role in the industry globally through a focus on quality, innovation, and sustainability."
Lucas said the company's drive to go down the publicly listed route was based on its desire to be well-capitalised, while also giving investors an exit path.
"As the space starts to unfold we will need to be well-capitalised."
Lucas said it had already seen a lot of interest from investors wanting to be involved in the sector.
Infratil prices $400m capital raising for Vodafone deal
"You can that see through various crowd-funding raises."
But he said going through an initial public offer meant it was a much more regulated offer.
"Investors have also got the opportunity to get their money out."
The company plans to float up to 20 per cent of its shares, which could make liquidity a challenge.
It will use the money to advance its research and products, investigate a site for a new commercial processing facility, hire more staff and increase its working capital - as well as paying for the float.
Lucas, alongside co-founder Nic Foreman, has been involved in growing and researching industrial hemp since 2002 when they were granted one of New Zealand's first cultivation licences.
In February it gained new licences from the Ministry of Health, enabling it to import, cultivate and research medicinal cannabis.
That added to its existing licence to possess controlled drugs, which allows the company to extract, process, and manufacture cannabis products for scientific research.
The Misuse of Drugs (Medicinal Cannabis) Amendment Bill passed its third reading in December last year, laying the foundations for a medical cannabis industry.
In addition to giving the terminally ill a defence against the use of illicit cannabis products, the bill requires the Government to write a regulatory framework for the medicinal cannabis industry within a year - suggesting it could take until 2020 for a clearer indication of the shape the local industry will take.
Not for the faint hearted
But Cannasouth's offer document show there are plenty of risks.
They warn there could be delays in developing the new framework, or the medical conditions for which medical cannabis can be prescribed may be so narrow it will not support profitability for the multiple companies operating in the sector.
"Cannasouth's business model and future revenues are dependent on the introduction of legislation and regulations, including but not limited to the Medical Cannabis Scheme which will enable Cannasouth to implement its business plans."
It also warns that the current or future Government may change its approach to medicinal cannabis laws.
The company's licences are renewable annually and it must satisfy certain criteria to meet the conditions of those licences.
"There is material risk that the company may not be able to renew one or more of the licences that it has been granted. This would impact materially on the ability of the company to carry out its business operations."
It says that not gaining licences would mean vital revenue streams from sales would be unavailable.
However Cannasouth's documents also say it has established working relationships with the appropriate licensing authorities over the past few years, so it is "reasonable to expect" that may hold the company in good stead for future licence applications.
The company also warns that the cannabis industry in New Zealand is in its infancy and its financial success is dependent on a sustainable market being developed and it being able to develop products to penetrate the local and international markets.
"The extent of future revenues and/or profits (if any) are uncertain and cannot be accurately predicted."
Investors are likely to have to dig into their pockets again to continue to fund the company.
"It is likely that the company will need to rely on continued shareholder financial support until such time as it can generate sufficient revenue and profitability to fund its business internally or can attract funding from a range of other sources such as bank and debt funding."
Pay rise for founders and board
If the listing of Cannasouth goes ahead, both its board members and founder executives will get a bump in their pay.
Co-founders Mark Lucas (chief executive) and Nic Foreman (chief operating officer) will see their salaries rise from $80,000 to $125,000 each from the date of the listing and will both have a company vehicle.
Chairman Anthony Ho will get a director's fee rise from $40,000 to $75,000 and independent director Conor English, a former chief executive of Federated Farmers, will see his fee rise from $40,000 to $50,000.
Lucas said the company had debated the pay rise but decided to go ahead with it. He said there would be plenty of other people doing similar jobs who were being paid a lot more.
"It is not about the salary for us as major shareholders, it is about building the value and the only way we can create value is growing the business itself."
Lucas and Foreman currently own 34 per cent each of the company but that is likely to shrink to 27.6 per cent if the offer goes ahead.
• Wants to raise up to $10 million with a minimum of $5 million through a 50c per share offer
• up to 20 per cent of the company is being floated
• market capitalisation expected to be between $46m and $51m.