Chemist’s Warehouse has just taken a stake in Brisbane-based Fiji Kava, which is doing it tough

A struggling Brisbane company surfing in on the alternative medicine craze has just deepened ties with Australia’s biggest pharmacy retailer.

Fiji Kava, which manufacturers Kava extract capsules, has struck a $1.4m deal with Chemist Warehouse.

A struggling Brisbane company surfing in on the alternative medicine craze has just deepened ties with Australia’s biggest pharmacy retailer.

But will it be enough to help turn around the sagging fortunes of loss-making Fiji Kava, which manufactures extract capsules from the revered plant aimed at promoting sleep, soothing nerves and relaxing the mind?

The investment deal announced this week with Chemist Warehouse follows closely from a round of severe cost cutting inside Fiji Kava and a management shake-up, which saw founding boss Zane Yoshida leave the top job.

Under the agreement, Chemist Warehouse will invest up to $1.43m in Fiji Kava and secure a 10 per cent stake in the business over the next two years.

The pharmacy giant has just acquired 6.5 million shares at 11 cents each and, assuming performance hurdles are cleared, will snare another 6.5 million at the same price in the 2023 financial year.

Dr Anthony Noble, CEO of Fiji Kava

It’s a logical progression from the announcement in April that Chemist Warehouse would stock the products in more than 300 of their retail outlets across Australia and New Zealand. They’re also available online, including the pharmacy’s Alibaba Tmall Global Store in China.

New Fiji Kava supremo Anthony Noble (illustrated) described the deal, which adds to existing sales agreements with Coles and Amazon, as “transformational’’ for the company he only joined at the end of May.

Chemist Warehouse co-founder and chairman Jack Gance was equally effusive, calling Fiji Kava a “genuine market leader’’ and talking up the “global opportunity of kava’’.

But shareholders are likely to be underwhelmed at the dilution of their investment, which has proved disappointing thus far.

Investor advocate Stephen Mayne also took a shot at the tie-up.

“Should retailers take equity stakes in their suppliers?’’ he tweeted.

“Hmmm, probably not because it creates a conflict of interest when dealing with competing suppliers. This Fiji Kava deal suggests Chemist Warehouse has excessive market power, which it is using.’’

Launched in 2014, Fiji Kava operates a 45ha farm and tissue culture lab in…you guessed it, Fiji.

It started trading on the ASX four years later after raising $5.2m from punters at 20 cents a share, making it the world’s first listed company manufacturing products from the root of the ancient plant.

But, outside of a brief period last year, the share price has steadily traded below the issue price.

That’s largely because Fiji Kava has consistently suffered significant losses and been forced into multiple capital raisings.

It reported $1.54m of red ink in the December half even as turnover more than doubled to a record high of nearly $500,000.

Matters came to a head last October, when Yoshida stepped down as managing director, calling it “an appropriate moment for a transition to occur’’.

He remains on the board in a non-executive capacity but has seen his salary slashed by more than half.

Just weeks after taking over, Noble announced a raft of lay-offs and cost saving initiatives last month, including a 40 per cent cut in directors’ fees and a centralising of global operations in the Brisbane headquarters.

Noble must now be pinning his hopes on the long-term outlook for the world’s natural medicine market, which is forecast to be worth more than $US210bn by 2026.