LOVE Hemp has been forced to pay a £70,000 ‘financial penalty’ to the Aquis Stock Exchange (AQSE) for breaching a number of guidelines, including the publication of ‘misleading’ information.
The embattled CBD company, which has had its shares suspended from the platform since early May, announced last week that it had ‘reached a settlement’ with AQSE regarding a disciplinary notice.
This fine is understood to be the result of an ‘ongoing confidential AQSE investigation’ into the company’s handling of a £2m capital raise in February 2022, which resulted in the departure of its corporate advisor and its subsequent suspension.
Now a settlement has been agreed, Love Hemp tells BusinessCann it can now progress with discussions with its proposed new AQSE advisor and see its suspension lifted ‘as soon as possible’.
On August 25, 2022, AQSE made the findings of its confidential investigation into Love Hemp public, shedding light for the first time on a number of events leading up to its suspension.
The stock exchange found that Love Hemp had twice breached rule 4.2 of the AQSE Rulebook, which states companies must ensure information it announces ‘is not misleading, false or deceptive’ and doesn’t omit any pertinent information.
It also found that Love Hemp had breached rule 3.3, which states a company must establish systems to ensure it is able to comply with AQSE rules, and that its directors understand their obligations and responsibilities.
Furthermore, Love Hemp was also found to have breached rule 3.5, which requires companies to ‘act with integrity towards the holders and potential holders of its securities’.
As a result of these failures, Love Hemp was issued a £100,000 fine by AQSE, which was reduced to £70,000 for early settlement.
Love Hemp, which reported a net cash balance as of December 31, 2021 of £83,113, told BusinessCann while the ‘fine is unfortunate at current trading levels’ it ‘does not impact the company’s operations’.
In a separate statement to investors, newly appointed Chairman Graham Mullis said the board ‘regret that Love Hemp has found itself in this position’ and that the company has taken remedial measures to ‘strengthen its board’ and ‘improve governance’.
“I would like to thank shareholders for their patience during this period and I very much look forward to communicating in due course the exciting plans the Company has for building shareholder value.”
It is understood that Love Hemp’s July boardroom reshuffle, which saw Andrew Male change roles from Executive Chairman to Non-Executive Director, alongside the appointment of Mr Mullis, James Martin as new company secretary and Anthony Dyre as new Chair of the Audit Committee, was part of this remedial action.
Asked about the progress the company had made to secure a new advisor, Tony Calamita, Love Hemp’s CEO, added: “Good progress is being made with a new Aquis advisor, and now the disciplinary action has been agreed with Aquis, the take-on process with the advisor can resume. We will update the market in the coming weeks on this progress.
“Lifting of the trading suspension is conditional on the new corporate advisor onboarding Love Hemp. This process is underway and we are keen to complete this as soon as possible. We are unable to comment on exact timing at this point; however, we look forward to updating the market shortly.”
According to the investigation, Love Hemp first breached AQSE rules on February 8, 2022, when it announced the ‘completion’ of a £2m fundraise.
The company did not disclose in its announcement that some participants in this fundraise had delayed settlement terms, meaning the full amount of the proceeds was not due to be paid to the company for weeks, an omission AQSE believes ‘could be seen as false or deceptive’, and may have given a misleading impression of the company’s actual financial position.
One investor, who entered into a subscription deed for £1.2m of this £2m fundraise, failed to make this payment by its agreed due date on March 7.
Rather than update the market, Love Hemp’s directors reportedly decided to allow said investor to continue to attempt to make the payment.
On March 31, three weeks after the due date for the payment had passed, Love Hemp released its interim results, making no mention of the failed payment and informing investors that its cash position had been ‘significantly improved’ following its February 8 financing ‘with a total of £2.060m being raised’.
After still not receiving payment a month later, Love Hemp decided to rewind the allotment of shares to the investor on April 28.
A day later it informed Peterhouse Capital Limited, its AQSE corporate finance advisor, of the situation, leading the company to resign as advisor on May 2 and Love Hemp’s shares to be suspended from the exchange.
On May 3, Love Hemp informed investors that the investor had failed to make the payment.
The company maintains that it initially had no reason to believe the funds would not be forthcoming, due to the previous performance of this investor, and ‘made a judgement decision’ to work with them to try to secure payment.
AQSE says the three months in which it failed to ‘clarify and / or correct the announcements’ meant ‘investors had a false impression of the company’s cash position from the beginning of February until early May 2022’.
It added: “The continued representation in announcements regarding a completed fundraise, including in key announcements of interim results and statements, is indicative of a failure to maintain adequate controls over the review and accuracy of price-sensitive information.”