Unsecured creditors face losses of $3m after closure of medicinal cannabis company Althea
Dozens of unsecured creditors have been left $3m out of pocket after a Melbourne-based medicinal cannabis company entered administration following the sale of key assets to a rival producer.
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Dozens of unsecured creditors are facing losses of $3m as the fallout from the winding down of a popular medicinal cannabis company unfolds.
Melbourne-based Althea Company, a subsidiary of ASX-listed Althea Group Holdings – a licensed producer, supplier and exporter of pharmaceutical-grade medicinal cannabis – entered voluntary administration earlier this month.
The business is being wound down following a $1m asset sale in May to one of Australia’s top licensed medicinal cannabis producers, Tasmanian Botanics.
The sale was reported to include a revenue-sharing arrangement on residual inventory sales, to allow Althea Group to focus on the rapidly expanding global THC-infused beverage market.
The group’s board decided to close out the subsidiary through voluntary administration, but 64 unsecured creditors have been left behind, facing losses of $2.7m – $3m, minutes from the first meeting of creditors lodged with the corporate regulator reveals.
An additional unsecured creditor, parent company Althea Group, was listed as being owed over $72m.
Other listed creditors included pharmaceutical manufacturing company Extractas Bioscience ($1m), retail pharmacy data specialist NostraData ($16,500), Colombian cannabis company Clever Leaves ($234,026) and business Happy Health ($227,195).
Insolvency expert Sule Arnautovic of Salea Advisory, who was appointed administrator on July 9, said the company was no longer actively trading or employing staff.
He said the administrator’s office was in the process of engaging an external valuer to undertake an assessment and valuation of the company’s stock.
Mr Arnautovic said there was a related party debtor, Peak Canada, of about $USD22m.
“The chairperson advised that further investigations were required to ascertain the quantification of this amount and the likely recoveries available,” the minutes read.
He also noted the company had one secured creditor, investment company Causeway, which was owed about $500,000.
The $1m cash sum received from the sale to Tasmanian Botanicals had already been “paid directly” to Causeway under their security over the company, the administrator said.
“The chairperson acknowledged that in their capacity, Causeway could appoint a receiver over the company’s assets/business at any stage during the administration.”.
Mr Arnautovic said Althea Group indicated that they were likely to put forward a deal to creditors, which would provide a greater return than if the company was tipped into liquidation.
Creditors will vote at the second meeting whether to accept the deal or place the company into liquidation.
The Melbourne based business was run out of Elizabeth St in the CBD.
Althea Group Holdings was contacted for comment.
It comes as Australia’s medical cannabis industry continues to surge, with revenue expected to grow at an average annual rate of 78.1 per cent over the five years to 2024-25, reaching $445.6m, according to data from market research firm IBISWorld.
“Australia’s medical cannabis industry has experienced soaring growth and regulatory evolution since cannabis cultivation was legalised for medical purposes in 2016,” their research reads.
“Despite challenges relating to strict regulations and advertising restrictions, industry manufacturers have thrived, buoyed by the gradual societal acceptance of cannabis use.”
The research said several factors had contributed to the industry’s rapid growth, including increased cannabis awareness, fading stigmatisation, improved technology and simplified ease of access to medication.
“However, imports are meeting greater demand, not domestic production,” it read.
“Medical cannabis manufacturing is set to continue expanding, albeit at a subdued rate compared with recent years.
“Businesses will benefit from opportunities to tap into growing export markets worldwide.”
A spokesperson for the Australian Medicinal Cannabis Association told News Corp there have been anecdotal reports of around one million scripts issued in the past 12 months.
They said one of the biggest challenges facing the medicinal cannabis industry in Australia was regulatory burden.
“The Therapeutic Goods Administration heavily regulates medicinal cannabis products,” they said.
“The majority are unapproved therapeutic goods requiring approval under the Special Access Scheme or Authorised Prescriber Scheme.
“Given the proliferation of medicinal cannabis prescriptions, these schemes are no longer fit for purpose.”
They also said there were increasing concerns regarding overprescription and poor clinical practices.
“Recent reports are that certain doctors are issuing thousands of scripts per month, raising regulatory red flags,” they said.
“Many GPs are still reluctant to prescribe medicinal cannabis due to ongoing stigma and lack of education and understanding about medicinal cannabis.
“For this reason, telehealth clinics are dominating medicinal cannabis prescribing, which has raised concerns about the quality of patient care.”
They said although medicinal cannabis prices had dropped significantly, cost remained a barrier for most.
“Clinical evidence for medicinal cannabis is still evolving, and while evidence is reasonable for conditions like anxiety, insomnia and chronic pain, the absence of gold-standard evidence continues to affect prescriber confidence and broader medical acceptance.”
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