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

Boardroom infighting and allegations of financial impropriety have erupted at Australian cannabis business Epsilon Healthcare, threatening 25 jobs and the largest medical cannabis operation in the southern hemisphere.

On December 17, Epsilon announced that it had appointed administrators Ian Purchas and Hugh Armenis of SV Partners to take control of the company and conduct an “urgent assessment of the company’s business operations and financial affairs.”

Mr Purchas said the “core” businesses were strong and the move into administration was due to “disagreements” at board level.

“They (the majority of the board) concluded that uncertainty at the board level could cause creditors to make claims that the company may not be able to pay,” he said.

The company’s ASX filings in recent months reveal a chaotic reshuffling of board and management positions, as well as allegations of potential financial impropriety.

Epsilon Healthcare produces medicinal cannabis products at a site in Southport on the Gold Coast. The company entered administration on December 17.

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

Mr. Cui is Chairman of the Board.

On Nov. 21, the company announced it was terminating Mr. Yiannopoulos as CEO pending the end of his probationary period.

On 14 December Mr Cui called an extraordinary general meeting of shareholders to remove Mr Beasley as a director.

In a Nov. 20 statement, Mr. Beasley said Mr. Cui may have been involved in financial improprieties, including non-disclosure of payments from Epsilon to Watercrest Asset Management, which Mr. Beasley said was owned by Mr. Cui.

“According to ASIC, Mr Cui controls 100 per cent of Watercrest through a number of holding companies,” Mr Beasley said.

“Watercrest’s payments were not disclosed to shareholders.

“The amount of payments is unclear to me.

“When I wrote to Mr. Quyi, I expressed concern that not only were the payments not disclosed, but to my knowledge they were never approved by the EPN board and I was not aware of any agreement to support the payments.

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

SV Partners’ Ian Purchas met with Epsilon staff on Tuesday on the Gold Coast

In a statement dated December 14, Mr. Cui denies Mr. Beasley’s allegations and states that payments from Epsilon to Watercrest were remuneration for his consulting work with Epsilon and those payments were not hidden from Mr. Beasley.

Mr Purchas has canceled special shareholder meetings as he evaluates the business.

“As administrators, we have not formed one opinion or another on these (allegations),” Mr. Purchas said.

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

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

The $8 million company employs 25 people and Mr Purchas told workers at the Southport site on Tuesday he had no plans to cut staff.

“There are no job losses, it’s not even being considered,” he told NCA NewsWire.

“But this is based on the information available today.”

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

“They get clear orders ahead,” he said.

“Based on my visit yesterday, they were under the impression that their processes and procedures were going well and confidently. They seem to have a good supply chain.”