A SIGNIFICANT investor in Love Hemp has demanded that the company’s Chairman be removed, all director and board member’s salaries be slashed by 75% and that a financial review into its spending be launched.
The UK CBD brand announced last week that it will convene an Extraordinary General Meeting at 11:00am on April 1 2022, at the behest of Pershing Nominees Limited.
Pershing, which owns 79,505,999 shares in Love Hemp, representing over 5% of the total paid-up capital and 9.6% of its total issued share capital, wrote to Love Hemp on February 11 to request a vote on five resolutions, each of which would have a significant impact on the company’s operations.
The news comes as Love Hemp prepares for an uplisting onto the London Stock Exchange some time this month, and has seen its existing shares on the Aquis Stock Exchange tank 30%.
According to the letter sent to Love Hemp a ‘group of shareholders’ at Pershing, a financial services provider which is part of the Bank of New York Mellon Corporation, are being represented by one Kamran Sattar.
The letter goes on to propose a number of specific resolutions, but gave little context as to the reasons behind its demands, and has not responded to BusinessCann’s request for comment at the time of writing.
Love Hemp, not unexpectedly, said that its board ‘unanimously recommends’ that investors vote against all resolutions.
The first resolution focuses solely on the company’s current Chairman and Director Andrew Male, who joined the company in December 2019.
It asks that shareholders vote on whether Mr Male ‘be removed from office as Chairman of the Company with immediate effect’.
At the time of Love Hemp’s most recent financial report covering the year ended June 30 2021, Mr Male owned around 6m shares in the company representing less than 1% of the total, though this may have changed in the months since.
BusinessCann also approached Mr Male directly for comment, but is yet to receive a response.
In response, Love Hemp says that he has ‘demonstrated his value to the company’, citing the fact that 74% of shareholders voted to re-elect him as chairman during its general meeting on December 31 2021.
Next Pershing called for the remuneration of ‘all directors and any board members to be reduced by 75% and benchmarked against similar companies’.
For the year to June 30 2021 Mr Male was reportedly paid £142k, up from £43k in the previous period, while Mr Calamita was paid a total of £180k, up from £67k.
According to the company, In February this year both Mr Male and CEO Tony Calamita elected to accept their remuneration in ordinary shares of the Company until 30 June 2022, “greatly” reducing the company’s cash outlay.
The next two resolutions target the company as a whole, calling for a ‘strategic review’ to be launched, while the ‘company be put up for sale’ or search for a new strategic partner.
Furthermore it calls for a ‘review of the recent financial history’ of Love Hemp to be conducted to ensure that capital has ‘been used correctly’.
This includes examining that any conflicts of interest have been properly declared, that all salaries relating to the board’s related companies and family members have been fully disclosed, and that all expenses are justified.
On the latter, Love Hemp argued that an independent forensic investigation would create a ‘significant distraction for the Company and impair its ability to deliver on operations’.
The final resolution related specifically to the company’s marketing spend, a contentious issue with many investors, calling for ‘all marketing spend to be halted’, and the company be operated in such a way it becomes self-sufficient.
Financial Position & Marketing Spend
In December 2021, Love Hemp reported revenues of £4.3m for the full year to June 30 2021, up from £2.7m a year earlier.
The young company, which is currently loss making, said it spent £1.4m on marketing and promotion during the period, up from £48k in the year prior.
It also reported non-current prepayments of £4.2m in relation to licensing and marketing services. Prepaid expenses are only recognised on income statements when a company consumes the product or service.
Love Hemp’s exuberant marketing strategy, which now includes partnerships with the UFC and a national media campaign with Anthony Joshua is expected to continue into the coming year.
Though some investors have questioned the levels of capital expenditure on marketing, Love Hemp’s directors explained to BusinessCann in an interview held before the recent developments, that it is a core part of its strategy.
Mr Calamita said: “From a market perspective, we made a huge transition last year because we went from outsourcing the marketing expertise and leadership to having an in-house team and infrastructure. And so that allows us to own another one of our core competencies.”
He continued that the company felt it needed a ‘springboard’ to give Love Hemp ‘credibility and visibility’ in a saturated CBD market, and that the partnership with the UFC and Anthony Joshua ‘instantly gives us that validation’.
Mr Male added that ‘investments we made into marketing initiatives’ was one of Love Hemp’s key focuses last year.
“When you think about all of the marketing initiatives that we’ve had, we’ve had to expend a considerable amount of capital to grab that ground and grab that beachhead.”
However both went on to state a key goal for the coming financial year ‘is being lean and really efficient and making the business profitable.’
According to Mr Calamita, the major media campaigns with Anthony Joshua have ‘laid the foundation’ for its future marketing strategy, which will take a more ‘data driven approach’.
By using things like Google and Facebook advertising programmes driven by indepth consumer analytics, Love Hemp hopes to make its marketing strategy much more efficient.
“We’re homing in on really specific advertising to get a positive return on investment. And that is where the bulk of our marketing spend is going this year.”