Cannabis company goes into administration in bad news for medicinal marijuana users in Australia

Board wars and accusations of financial impropriety have erupted at Australian marijuana company Epsilon Healthcare, putting 25 jobs and the largest medical cannabis production facility in the Southern Hemisphere at risk.

Epsilon announced on December 17 that it had appointed administrators Ian Purchas and Hugh Armenis from SV Partners to take control of the company and conduct an “urgent review of the company's business and financial affairs.”

Mr Purchas said the “underlying” businesses were strong and the move into administration had come about because of “divisions” at board level.

“They (a majority of the board) felt that the uncertainty at board level could lead to creditors filing claims that the company may have been unable to pay,” he said.

The company's ASX announcements in recent months reveal a chaotic turnover of board and management positions and allegations of possible financial impropriety.

On November 20, the company's deputy chairman, Alan Beasley, proposed an extraordinary general meeting (EGM) to appoint Peter Giannopoulos as director of the company and remove Xiao (Josh) Cui as company director.

Mr Cui is chairman of the board.

On November 21, the company announced Mr. Giannopoulos' resignation as CEO before the end of his probationary period.

On December 14, Mr Cui called for an EGM to remove Mr Beasley as director.

In the Nov. 20 announcement, Mr. Beasley said Mr. Cui may have engaged in financial impropriety, including failing to disclose payments from Epsilon to Watercrest Asset Management, which Mr. Beasley says is owned by Mr. Cui .

“Based on ASIC data, Mr Cui controls 100 percent of Watercrest through a series of holding companies,” Mr Beasley said.

'The payments to Watercrest have not been disclosed to shareholders.

'It is unclear to me how high the payments are.

'When I wrote to Mr Cui, I expressed my concern that not only were the payments not made public, but that, to my knowledge, they were never approved by EPN's board and that I was not informed was of any agreement to support the payments.

'In his written response, Mr Cui told me that the payments 'were made pursuant to a consultancy agreement dated 5 December 2022 executed by Stuart Cameron as director on behalf of EPN (Epsilon)'.'

Ian Purchas of SV Partners met with Epsilon employees on the Gold Coast on Tuesday

In the Dec. 14 announcement, Mr. Cui rejected Mr. Beasley's allegations, saying that payments from Epsilon to Watercrest were compensation for his consulting work at Epsilon and that the payments were not hidden from Mr. Beasley.

Mr Purchas has canceled the EGMs as he reviews the company.

“As trustees, we have not formed an opinion one way or the other on these (the allegations),” Mr Purchas said.

“We have the ability to appoint and remove or replace directors if we believe it is in the best interests of the company.”

Epsilon operates a medical cannabis production facility in Southport on the Gold Coast and a medical marijuana clinic under the Tetra Health brand.

The $8 million company has 25 employees and Mr Purchas told employees at the Southport branch on Tuesday that he had no plans to make cuts.

“There are no job losses in the pipeline, they're not even being considered,” he told NCA NewsWire.

“But that's based on the information available so far.”

Epsilon has lost about $44 million in the past four years of trading, but Mr Purchas said he saw “strength” in the business.

“They're getting strong forward orders,” he said.

'From my visit there yesterday it appears that their processes and procedures are running well and robustly. They seem to have a good supply chain.”