Waikato Business News April/May 2020

WAIKATO BUSINESS NEWS April/May 2020
17
Cannasouth aims
to raise $3m
By RICHARD WALKER
Hamilton listed medicinal cannabis firm
Cannasouth is forging ahead with a share
offer to raise $3 million after a new regulatory
regime kicked in at the start of April.
The offer, which closes on
April 30, is to existing
shareholders and aims to
accelerate development of the
company’s key initiatives.
Chief executive Mark Lucas
said the early uptake signs were
promising. “Without going
into details, I'd say we're very
encouraged with the response
so far.”
Cannasouth wants to raise
funds towards a range of projects,
including registration and
launch of imported medicinal
cannabis products. The company
says it is currently well
capitalised with more than $7.3
million of cash on hand and no
debt. Its wholly owned subsidiary
Cannasouth Plant Research
New Zealand is about to lodge
new medicine licence applications
for its first products.
The Covid-19 lockdown
has seen construction halt
on its greenhouse cultivation
facility but any possible
delays from the lockdown
will not be “material”, Lucas
said, as the company moves as
quickly as it can to bring products
to market.
Mark Lucas says any delays from
Covid-19 will not be “material”.
“There’s a reason that [the
medicinal cannabis sector] is
developing - people are looking
for these types of medicines
and products, and ultimately
that won't have changed post
Covid-19.”
The regulatory change
means GPs can now prescribe
medicines containing THC
without sign-off from a specialist,
and also introduces
stringent standards that Lucas
believes will be good for the
industry.
He said registering medicines
to meet good manufacturing
process (GMP) requirements
is complex and difficult.
“Ultimately, it's going to be
a benefit for the patients. It's
going to be a benefit for the
industry because it means
the market’s not going to be
flooded with substandard products.”
GP education around
medicinal cannabis remains
a challenge for the industry,
and Lucas expects prescribing
of the new medicines to begin
slowly and then reach critical
mass as prescribers gain confidence
around levels of risk.
He said that has happened
in Australia, where numbers
ramped up “really, really fast”
and where there is a more complex
prescribing process which
varies from state to state. New
Zealand will have the benefit of
a single system.
“I think the ministry [in
New Zealand] wanted to learn
from other jurisdictions and I
think they have. And so we're
confident that the system here,
once fully bedded in, is going
to be a good one.”
While the first products to
market will be imported, Cannasouth
aims for vertical integration
with a medium-term
goal of producing raw ingredients
in New Zealand and taking
them from seed to sale.
That is assisted by its acquisition
of a 60 percent share in
Hastings-based Midwest Pharmaceuticals,
which already
operates in a GMP medicines
environment and has continued
operating the essential services
part of its business during the
lockdown.
Lucas said Cannasouth
has been building the foundations
of a successful business,
including recruiting the right
people. “I'm really pleased with
the structure that we've got.
The Cannasouth Cultivation
operation is going to be world
class. It's not going to be oversized,
but it has the ability to
scale up quite quickly,” he said.
“Our quality is going to be
about as high as you can get
and yet our production price
point is going to be much better
than some of the more traditional
approaches for producing
that material.”
Cannasouth is keeping an
eye on the recreational cannabis
referendum, which Lucas
says could have pluses and
minuses whichever way the
vote goes.
Tour operator optimistic as deal kicks in
A
deal that was the best
part of two years in the
making could hardly
have come at a better time for
Hamilton-based tourism operator
Leisure Time Group - and
for Waikato’s tourism industry.
It has acquired Auckland
events company Lime & Soda,
adding valuable extra domestic
capability to its offerings as
borders are closed to overseas
travellers.
With a strong emphasis
on inbound tourism, which
saw relatively fallow months
through winter, two years ago
Leisure Time Group decided
to start looking for an events
company to augment its offering
and address the seasonal
dip.
After a lengthy search,
managing director Scott Mehrtens
says they were able to
clinch a deal with boutique
firm Lime & Soda to kick in
on April 1 this year. It went
unconditional on February 28
“and then the whole world
changed”.
As the coronavirus pandemic
took hold, a busy looking
March through to June for
international visitors came to a
sudden stop. “It was devastating
to our international tourism
just like everyone else's.”
That makes the domestic
market all the more important,
and the Lime & Soda acquisition
all the more welcome.
“We looked at it long and
hard all the way through. And
the reason why we wanted to
do this was to de-risk our tourism
business. Lime & Soda is
very domestic-based, they've
got a wide range of clients
Scott Mehrtens
from different industries.”
Mehrtens says that gives
them some assurance around
lines of revenue over the next
nine months when international
markets are very uncertain
- particularly as domestic
events are largely being postponed
until later in the year,
rather than cancelled.
Lime & Soda’s owner,
Debra Dufty, has joined Leisure
Time Group and heads
the Events/MICE (meetings,
incentives, conferences,
events) team. She and her
team will remain in Auckland.
Mehrtens endorses the government’s
actions in closing
borders, despite the immediate
impact on his own business.
“It had to be done. We don't
begrudge what's happened,
it is for the greater good.
You know, we are all in this
together.
“Obviously the greatest
risk to New Zealand was
people coming in from other
countries, so you can totally
understand and endorse what
we've done and and I think it's
going to be better for us in the
longer term.”
Tourism Minister Kelvin
Davis has announced a rethink
of the industry post Covid-19,
and has tasked Tourism New
Zealand to lead the project.
““We have an opportunity
to rethink the entire way we
approach tourism to ensure
that it will make New Zealand
a more sustainable place,
enrich the lives of all our people
and deliver a sector which
is financially self-sustaining in
the longer term,” he said.
Hamilton & Waikato Tourism
chief executive Jason
Dawson welcomed the move.
“We will be an active participant
to help develop the
plan – domestically and internationally,”
he said.
“It’s giving us the chance
to pose questions around our
previous visitor arrivals and
expenditure growth, what
does success look like for the
future and how do we move
our sector from a ‘boom and
bust’ cycle?
Mehrtens says New Zealand
is already being written
about positively by some
international travel writers,
citing a BBC Travel section
article that puts New Zealand
in the top five countries when
it comes to bouncing back
from the pandemic.
He says Leisure Time’s
agents around the world are
keen to discuss New Zealand
offerings because the country
is considered a bucket list destination
but also a safe one and
well respected for the decisive
action taken in recent weeks.
“Of course,” he adds, “this
accounts for nothing until we
feel it is safe to re-open borders.”
In the meantime, as domestic
tourism becomes more
important, the Lime & Soda
acquisition will be helpful.
“We've got products that
we can sell to New Zealanders
now and into the future. And
we're definitely ramping that
up to be able to offer that to
the traditional supply chain
because there will be travel
agents around New Zealand
going, what are we going to
sell?”
In the absence of overseas
options, those agents will be
turning to local offerings and
that will involve the whole
industry, he says.
“We all need each other.
I can't offer a tour without a
hotel chain. A hotel chain has
to be a viable proposition,
though. And there's a lot of
infrastructure and a lot of private
enterprise that have got
a lot of money tied up in the
tourism industry; it is in a lot
of respects very capital intensive.”
Away from the Air New
Zealand headlines, he says
there are plenty of “ma and pa
operators” with a lot of money
tied up in tourism operations,
often with large bank debts.
“And they were a viable
business until two weeks ago.
So it's pretty heartbreaking.
“No one wants to be in this
situation but it is what it is.”
In the case of Leisure Time
Group, that included making
tough decisions early on. “We
went through a first wave of
redundancies a few weeks ago
prior to wage subsidies being
fully announced and available.
So we did have to make
an initial cut, which wasn't
pleasant.”
He says, however, that
staff understood it wasn’t
Mehrtens’ or the company’s
doing, but the impact of the
virus.
“Because we need to know
that we are going to survive
this - and we will survive
this.”
He expects to see mergers
and acquisitions over the next
few months to make businesses
more viable. Leisure
Time Group’s growth strategy
has been around acquisition,
and he says they are likely to
be looking for those opportunities
themselves.
“We've been around for 33
years. This is by far the worst
thing that we've had to deal
with in terms of contingency
planning. But we're very optimistic
that we'll get through to
the other side of this.”
- By Richard Walker