Ecofibre shareholders reject founder's nomination of Alex Keach to board

Shareholders in medicinal cannabis and hemp company Ecofibre (ASX: EOF) have voted against the proposed appointment of industry entrepreneur and ECS Botanics (ASX: ECS) founder Alex Keach to the board, with just 27 per cent of votes cast in favour of his election.

Keach was nominated by Phil Warner, who founded Ecofibre in 1996 and led the company's research and development into high-yielding plant varieties for more than two decades before retiring as CEO in 2017 and exiting the board the following year.

By that time Countplus founder Barry Lambert had come on as a major financial backer and would spearhead its initial public offering (IPO) in 2019, motivated highly to lift the medicinal cannabis industry so the treatment could be available to more people like his granddaughter who suffers from paediatric epilepsy.

Phil and Kylie Warner have nonetheless maintained a substantial holding of 14.67 per cent - worth approximately $5.5 million now compared to around $194 million held when shares were trading at their peak in late 2019.

In January this year, Warner lamented the current state of affairs and issued a notice calling for the appointment of Keach to fill an alleged shortfall in "hemp industry experience or knowledge".

"Since Phil Warner's resignation from the company prior to the IPO, the company board has never appointed a replacement director with any substantial level of hemp industry experience or knowledge. At the time of IPO, there was no-one on the board with any hemp expertise or specialised skills in the cannabis sector," the founder wrote in a letter to shareholders.

"This shortfall was further exacerbated by the CEO's and board's refusal to accept the mentorship, advice or guidance offered by Phil Warner relating to significant hemp related decisions. It is now apparent that this lack of knowledge has resulted in the company losing its advantage as a leading global hemp company.

"Soon after the company's 2023 AGM, the CEO, Eric Wang resigned, effective immediately. Eric was from the finance and business sector, and had no prior hemp industry experience or knowledge. Due to the sudden resignation of Eric Wang, the EOF board is short a director with any working knowledge of the current markets, and has been left with a vacuum of the continuity of the existing business."

In his letter published before Ecofibre's announcement that it would sell hemp seed and food business to Elixinol for $3 million, Warner argued that if Ecofibre were to restructure or divest any hemp related assets, the board would require a hemp industry insider like Keach, who founded ECS Botanics but left his corporate role with the company in early 2023.

"In the present circumstances EOF finds itself in, it is questionable whether the board possesses the specific hemp skills set required to maximise the current value of the company, and to maximise the value of the company in the event of any future restructure or divestment of assets," Warner said.

"Alex was the founder of, and is presently a non-executive director of, ECS Botanics Holdings Limited, a listed GMP (good manufacturing practice) pharmaceutical medical marijuana company growing organic crops in Australia for the Australian and EU market."

He described the proposed director as "sincere and affable, with a passionate founder-led mentality which is required for companies to survive and thrive in nascent industries".

"With the skills and knowledge he brings, he would be a valuable addition to the board that can only benefit the company and shareholders

"He has no conflict of interest in relation to EOF's diverse operations. EOF is not involved in the GMP pharmaceutical high-THC medical marijuana industry. Both companies operate in different sectors of business in the multifaceted hemp industry spectrum," Warner said.

However, the Ecofibre board begged to differ and urged shareholders to vote against the resolution, and 67 per cent of votes cast were against Keach's appointment. One reason they gave in their arguments was "potential conflicts" given he is still a director of a company that has significant operations in the Australian cannabinoid products industry.

"Both Ananda Hemp and ECS Botanics are focused on the medicinal cannabis market. Whilst today they have different focuses, the potential for conflict of interest is real. Whilst conflicts can often be managed, with the director stepping out of discussions or information flow, it can be quite disruptive to the board dynamics," they said.

The board argued that part of Keach's experience may become less relevant to the ongoing operations of Ecofibre given the business continues to change.

"The board also notes that the company is able to and does engage outside consultants as subject matter experts on topics where it considers the company does not have the requisite skills or experience available internally," the directors wrote.

They also claimed it would not be appropriate to increase the number of directors back to five, having reduced it to four in February 2023.

"Over the last 18 months the company has also been focussed on substantially reducing its operating costs across the business, including a significant reduction in total staff headcount," they said.