Robin Thomson Photo: Gisborne Herald
Robin Thomson Photo: Gisborne Herald

BusinessMarch 12, 2018

The collectivist plan to revive Ruatoria

Robin Thomson Photo: Gisborne Herald
Robin Thomson Photo: Gisborne Herald

A social enterprise on the East Coast has been set up to capitalise on a global trend towards natural health products and bring economic recovery, Russell Brown reports.

A little over two years ago in Ruatoria, 20 locals met at the invitation of a local hapū trust to discuss economic development for a community with few options beyond low-margin primary production.

The quorum was down to 12 for a follow-up hui. By the time a third hui was held, there were five. Those five became the founding directors of Hikurangi Enterprises – which last month announced a $160 million agreement with Seattle-based company Rhizo Sciences to supply 3000kg of medical cannabis products over the next four years.

If things proceed to plan, Ruatoria – a town that lost its last retail bank in 2015 – will be home to the country’s only dedicated medical cannabis lab and production facility. Hikurangi will oversee clinical trials of the products the facility will make. And, remarkably, the whole venture will be conducted as a social enterprise dedicated to local community development. Local people will be stakeholders both as growers and, should they choose, financial investors.

Some caveats are in order. Rhizo itself was formed only last year by Dallas McMillan, an Australian with a background in veterinary science and digital marketing and its business model is principally in providing turnkey medical cannabis processing facilities. And New Zealand is not the only country it’s interested in – a separate, larger deal announced in January will reportedly see it invest $45m in a new export facility in Lesotho and buy the plant’s entire 35,000kg annual crop. But, subject to the right things happening with the Ardern government’s new medical cannabis regime, Hikurangi’s deal is real enough.

The project, says managing director Panapa Ehau (Ngāti Ue Pohatu), is the result of an original strategic decision to look beyond primary production towards “value-adds, the whole value chain from IP to end consumer”. Ehau, tall and dreadlocked, would appear to fit the stereotype of a weed grower, but his background is in business development and sustainability. And he didn’t start with cannabis.

Panapa Ehau. Photo: Supplied

“Once the strategy was established, we got an agronomist and a couple of scientists who were at the end of their working lives to come up and have a look. What they saw was there there’s lots of kānuka. Then high-value bioactive stuff came, up so we had a look what bioactive opportunities there were in kānuka. There’s a global trend towards natural health products, so it was kind of a no-brainer to look there.”

The company secured $400,000 in public and private funding last year for clinical trials investigating the potential benefits of kānuka extracts in treating skin conditions and anxiety. Hikurangi has identified as many as 20 other native plants, fungi and shellfish that may have useful bioactive properties. Cannabis, an exotic plant, is an outlier.

“The natural resource we’re leveraging there – and it’s why we looked at it – was all the people up here who are very, very experienced in growing marijuana. It’s about using the resource which is our people. It has taken us 18 months to get our people on board, and now we have lots of locals who want to grow with us.” What they’ve been growing since 2016 is, technically, hemp: the cannabis variety that contains negligible THC but is potentially rich in CBD, the medically useful cannabinoid that will be removed as a controlled drug by the government’s medical cannabis bill.

The government bill comes in the wake of the World Health Organisation’s finding in December that CBD had little or no abuse potential and was a potential treatment for epilepsy, Alzheimer’s, cancer and Parkinson’s Disease. The de-scheduling of CBD is thus a no-brainer: it would have been embarrassing for the Ministry of Health to continue to insist that CBD keep its controlled status after the WHO finding.

But Hikurangi needs two things from the government’s bill and its accompanying regulations that are less of a certainty. The first is the ability to export. This shouldn’t be a hard ask. US government regulations have hamstrung its own medical cannabis industry by making export all but impossible and there is a global rush to fill growing world demand. If we don’t do it, others will.

The second thing is trickier.

“The regulations being created for growing medicinal cannabis will be based on the Australian and Canadian regulations,” says Ehau. “They say you can’t work in the industry if you’ve got a conviction for misuse of drugs. We’ll be talking to politicians and saying that if you’re interested in developing low socio-economic areas and getting some real runs on the board, these are the people – the people who got busted for a tinny or for growing 20 years ago – who’ll benefit most from having the ability to earn a legitimate income doing something they’re already skilled in.”

Photo: Supplied

“You get an increase in family incomes, you get an increase in the sense of well-being because they’re actually doing something they’re really good at. And you take away the stress of them having to look over their shoulders just to put food on the table. There are multiple wins there.”

The winning message has yet to get through to Regional Economic Development minister Shane Jones, who when asked in a recent Newshub interview whether Hikurangi might be a candidate for a share of the $3 billion regional development budget, declared that he was personally “hard-line on drugs, so it’ll be a bloody big stretch for me to start popularising cannabis,” and that he was “not going to back away” from his views.

“To Shane’s credit he said he hadn’t seen the details yet,” says Ehau diplomatically. “I think it’ll be very convincing once he gets to see that. People can make informed decisions when they’re informed. Otherwise they make decisions based on what they assume or previous knowledge. And that’s what Shane’s done. There will be the opportunity, with the right people talking to him and showing him the benefits of it. And the benefits for our people on the coast will be the same for his people up north.”

But if some politicians are wary, the same is not true of government agencies. Callaghan Innovation helped fund last year’s kānuka trials and Hikurangi has hosted officials from AgResearch and MBIE. My first contact with Ehau’s business partner, Manu Caddie – a former university lecturer and consultant of Tongan and Pākehā heritage who came “home” to the East Coast with his Ngāti Porou wife Tarsh – was when he messaged to ask about a story I’d written about the likely contents of the government bill. He explained that he’d been alerted by his man at New Zealand Trade and Enterprise.

There are other political dimensions. Although the social enterprise model is increasingly shaping up as a good fit for iwi businesses, Hikurangi is not an iwi venture. Ehau acknowledges that status has its advantages. “It has its challenges as well, but if you’re within a hapū or an iwi mechanism you have constraints. In the commercial world you need to be able to act commercially and in a timely way. So it was born out of a local hapū trust, but it’s a stand-alone organisation that has people from the community who represent the hapū, but don’t have to go back to get permission to move forward on stuff. They’re good people who hold the kaupapa and want to see things done well for the people. It’s by the people, for the people, with the people – without being constrained by the people.”

Photo: Supplied

Some of the other plants Hikurangi is looking at developing into products are rongoa, traditional Māori medicines – an area Ehau agrees is potentially sensitive. “We do get challenged on that. The thing is that there are overseas companies that are doing it anyway. So either we jump on and do it, or we just miss out altogether. It’s as simple as that.”

The group structure, with the Hikurangi Huataukina Trust at the top, is relatively complex. Waiapu Investments Ltd has been created as the vehicle for a PledgeMe crowdfunding round aimed at bringing upwards of $2m. (The stated intention is that local interests will dominate ownership but investment offerings will be made to outsiders who “align with the vision” of Hikurangi Group.) Charitable company Hikurangi Enterprises Ltd appoints the board of Waiapu Investments and shares ownership of Hikurangi Bioactives Limited Partnership with Caddie’s company NZ Nutraceuticals, which shares ownership of Hikurangi Hemp Holdings Ltd with Waiapu. Hemp Holdings will own Hikurangi Cannabis Company Ltd with institutional investors.

“Hikurangi Enterprises wasn’t set up to be a cannabis grower,” says Ehau. “It was set up to enable industry development and opportunities on the coast. At the centre of it, we’ve got the charitable trust which holds the kaupapa. That’s its focus – to make sure that everything done is about the land and about the people. Hikurangi Enterprises is the leverage tool to allow that to happen. Then Waiapu Investments provides the ability for whanau and supporters to be able to fund that and get a real return from it. All the rest of it is just operational stuff.”

He says Hikurangi’s social enterprise status has offered its own kind of commercial advantage. “We’re very clear with anyone we engage with what our model is, because that’s part of our story. And it sets the foundations of what any relationship is formed on. In order to have an open and good working relationship there needs to be an understanding. And the story is actually one of the big things we have going for us. It’s unique and it’s looking out for the little guy – and people love the little guy being looked after.”

The rest of this year will be largely devoted to capital-raising (Auckland broker Northington Partners is taking an offering to institutional investors in parallel with the PledgeMe campaign) and the construction of the production facility, which Ehau expects will bring as many as 120 jobs to Ruatoria. Although in the short-term only CBD products will be made, Ehau thinks it’s a given that “whether it’s in one year or 10 years” Hikrangi will also be making products containing THC.

Photo: Supplied

He believes Hikurangi’s model is portable to other regions.

“We’re collectivising here on the Coast. If we try and do it as individuals, even as Hikurangi Enterprises, we’ll be too small and some big players will come into the industry. Overseas, we’ve had investment bankers buying out the industry, so all the little guys can’t compete because they don’t have the scale. We’re collectivising here so it’s not just one farmer trying to grow. We’ll have a collective of growers who utilise central processing facilities. So we get economies of scale and more people can take part. If someone’s got half an acre they can be part of it, if they’ve got 200 acres they can be part of it.”

He says “behind the scenes” the company is investigating a national collective – like Fonterra, but with a crucial difference. “It’s not done on a focusing-on-profit model. It’s done on putting profit back into the communities, so community well-being is lifted. Then you have an increase in well-being across the whole country – and across some of the facets of society that need it the most, those who the system struggles to cater for.”

“And unlike Fonterra, where our local milk price is dictated by the world price, it doesn’t matter what the world price is – if we’re making a profit we can determine the domestic price and make our products accessible to New Zealanders. We been told that whatever we do, overseas companies will just undercut us. But if we’re producing it for no profit and supplying it at cost price to our own people they can’t undercut us – and people will keep coming back to us because of the story. They’d rather support people who are doing good stuff rather than just making money.”

The Spinoff’s business content is brought to you by our friends at Kiwibank. Kiwibank backs small to medium businesses, social enterprises and Kiwis who innovate to make good things happen.

Check out how Kiwibank can help your business take the next step.

Keep going!