A tractor works at the Puro site at Kekerengu in Marlborough preparing the ground for planting of cannabis seed for medicinal cannabis cultivation. Photo / Supplied
A tractor works at the Puro site at Kekerengu in Marlborough preparing the ground for planting of cannabis seed for medicinal cannabis cultivation. Photo / Supplied
A messy dispute has erupted between start-up medical cannabis company Puro and two of its former directors. Both company founder Maxwell Percy and early-stage director Wayne Bailey have left the company board in the last 13 months.
Communicating through legal counsel, Puro managing director, Tim Aldridge, says Percy was askedto resign as a director and relinquish his shareholding due to alleged "unprofessional behaviour" by both Percy and his son Geoff Percy. Aldridge declined to detail the specific behaviour.
Percy denied the allegation and said he left the company on "amicable terms". He said that in 2019, Puro decided to raise money through equity crowdfunding, a course of action which he didn't favour. As a consequence, Percy said, he parted ways with the firm. He said a confidentiality agreement signed by the parties prevents him from speaking more freely.
Geoff Percy declined to comment. The Companies Register shows no link between Geoff Percy and Puro.
The rows between the company and each of its former directors appear to be unrelated.
Puro director Sank Macfarlane said the company ended its business relationship with Bailey "after concerns around his business, Taurus Group's, handling of company monies".
Fees owed by Puro to Taurus and funds owed by Taurus to Puro appear to form the basis of the dispute.
Bailey is a chartered accountant and executive director of Taurus, a Christchurch-based financial consultancy which has provided services to Puro.
Macfarlane said the company has taken its grievance both to police and the New Zealand Institute of Chartered Accountants (known as Chartered Accountants Australia New Zealand or CA ANZ).
Tim Aldridge, managing director of medicinal cannabis firm Puro. Photo / Supplied
Bailey said he is "aware that Mr. Aldridge has made a complaint to the police. However I understand the police consider this is a civil matter and are not taking the matter any further."
As a matter of course the police do not confirm investigations. Similarly the CA ANZ does not confirm investigations "unless and until" a matter results in disciplinary processes that are open to the public. A spokesperson confirmed only that Bailey is a member of the body.
"As to all matters," Bailey said, "we consider the allegations to be without merit and they will be defended should they arise."
Small company in a bright spotlight
Medical cannabis is a new industry in New Zealand. A legislative change in late 2018 paved the way for its emergence, but regulations rolled out in April this year provided the first opportunity for commercial production.
Puro is among a handful of companies licensed under the newly minted regime to commercially cultivate cannabis for medical use. It aims to sow its first crop of seedlings on land south of Blenheim imminently. The 85,000 seedlings, due to be transplanted, will constitute the country's largest medical cannabis crop, Macfarlane said.
But it's also a delicate moment for Puro, which failed to raise the $6m in bank debt it had hoped to take on in 2020 to fuel growth. Macfarlane said factors including Covid-19, and its effect on capital markets, delayed a planned fundraise, however the company is now set to embark on a private capital raise. He said the company is working with Pricewaterhouse Coopers and New Zealand Trade and Enterprise, and has "already had significant interest form [sic] blue chip investors…"
Dispute with founder
In November, 2019 Puro raised $4m, from some 750 investors, through the crowdfunding platform PledgeMe.
The Companies Register shows that Percy left Puro's board in October 2019, just before the campaign began. He ceased to be a shareholder earlier that year in March.
Percy has been an outspoken critic of medical cannabis crowdfunding campaigns generally, primarily on social media platforms. He has repeatedly warned of both wildly ambitious company valuations and revenue projections as well as the very light disclosure rules companies which crowdfund are subject to despite reaching a public market of investors.
But Aldridge said (through legal counsel) that Percy was party to the decision to crowdfund, and, moreover, that Aldridge believes Percy has a "vested interest" in undermining Puro because he and his son Geoff mean to launch a new cannabis company.
Percy said neither he nor his son have any such plans.
Puro changed its name from Erba to Puro in 2019. The web domains erba.nz and erba.co.nz remain linked to Percy's company Hemp Research. Last week one of the domains displayed a landing page that promised a new site "coming soon". The notice was removed in recent days.
Valuation fees
Wayne Bailey's company, Taurus, worked for Puro from its inception in late 2018 through 2019 (incorporation documents to establish Puro, then Erba, were filed by Taurus). Bailey, Taurus' head and 50 per cent shareholder, served as director of Puro from March 2019 to February 2020.
Taurus helped prepare Puro for its 2019 equity crowdfund. Part of that work entailed providing Puro with a valuation of the company, pegged at $23.4m; Puro described the valuation as "independent" and included it in its disclosure document.
The figure was based on a very generous valuation method that relies on a multiple of projected future years' revenue, although none currently exists. Even now, Puro remains a pre-revenue company.
The fees owed to Taurus for its work, and Puro funds held by Taurus, form the basis of the dispute with Bailey. The size of those fees is germane to understanding Bailey's and Taurus' independence.
At the time of the crowdfund, Aldridge described Bailey as an "independent director" of Puro in an exchange through PledgeMe's forum for questions and answers. The regulator, the Financial Markets Authority, gives no clear threshold for independence. But its governance handbook states that among the factors that affect a director's independence are "a recent or current material business or contractual relationship (eg supplier or customer) with the entity or any of its subsidiaries".
