THE Chairman of a recently-listed UK pharmaceutically-focused cannabis company has stood down after a breach of market rules.
Neil Mahapatra is a co-founder of the Oxford Cannabinoid Technologies (OCT) which floated on the LSE in the May this year, he is also founder of UK venture capital business Kingsley Capital Partners (KCP).
KCP owns 198,466,493 OCT shares – just over 20% of the company – and agreed with OCT and its financial advisors States Bridge Capital and Cairn Financial Advisers that it would not dispose of any shares for one year after the flotation.
In July this year ‘five members’ of the team at KCP struck a deal with merchant bank Brown Shipley to secure a £1m credit facility with the 198.5m OCT shares included as a security, says an RNS statement published on OCT’s LSE page.
Breach Of Lock-in Agreement
This agreement also saw all five members agree to provide joint security for the loan – £200,000 each – for the first ‘Lock-in’ year.
However, it has now emerged this Brown Shipley arrangement breached the ‘Lock-in Agreement’ between OCT and KCP at the time of the flotation.
And, Mr Mahapatra has agreed to stand down from his role as Executive Chairman of OCT.
In the RNS market announcement OCT says Mr Mahapatra will remain as Non-Executive Director on a salary of £25,000 a year.
And, Julie Pomeroy, currently independent Non-Executive Director, will assume the role of Non-Executive Chairman at a salary of £45,000.
A statement from OTC to BusinessCann said: “The OCTP Board is grateful to Neil for working with it to move towards a swift rectification of matters and is pleased to continue to work with him in his new role as OCTP further develops the business.
“The Company remains on track, on time and on budget to deliver its four research programmes with first clinical trials for Programmes 1 and 2 scheduled for Q3 next year”.
Analysis – What Has Happened Here?
In July it emerged that £400,000 of the facility had been drawn down and KCP has now assured the other three parties that it will not draw down any further funds under the facility until such time as the shares have been removed from the arrangement.
BusinessCann understands this £400,000 is being used by KCP to open a new overseas office with associated staff recruitment as it pursues further ‘opportunities in the cannabis space’.
KCP is said to be in ‘expansion mode’ and any suggestions it is short of cash are ‘inaccurate’. Sources describe the rules transgression as ‘technicality’ highlighting how five staff members are all loan guarantors for the first year of the Brown Shipley loan agreement.
KCP’s latest annual Companies House accounts for the year end March 31, 2020, show that it had a net worth of £10.5m. It had £1,155,875 of liabilities – including loans of £900,035 – falling due within 12 months, compared to £262,052 that were outstanding for re-payment within one year at the end of 2019.
BusinessCann understands these outstanding amounts represent loans from KCP’s overseas parent company Kingsley Capital (Cayman).
In a statement provided to BusinessCann KCP said: “Kingsley Capital Partners is a Multi Family Office investment firm, backed and supported by a number of UHNW (ultra-high net worth) families; KCP’s finances are extremely robust. The Brown Shipley loan facility was secured in July 2021 for the purposes of fuelling KCP’s plans for growth, which remain unaffected.”
One financial expert said it was a ‘massive own goal’ to breach a Lock-in Agreement with the market not taking kindly to the revelations as shares fell further, from 2.5p to 2p.
OCT’s shares have fallen sharply since flotation when they first traded at 4.8p. MD John Lucas told BusinessCann last week that the board had been left ‘shaking their head in disbelief’ at its market performance to date.
The market analyst suggested the breach of the Lock-in demonstrated a ‘lack public market experience’.