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BOMBSHELL: The FCA gets back to me on Zoetic and where does this leave the company?

By Tom Winnifrith | Sunday 7 February 2021

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Tomorrow, I shall publish my correspondence with the FDA in America which has the power to shut down the entire business of Zoetic (ZOE) for its serial rule breaches. But for today I stay in dear old Blighty. I published the dossier showing the lies and law-breaking of Zoetic (ZOE) on Wednesday and naturally, being a fine upstanding, badger-hating member of the financial community ensured that the FCA saw the entire document. At 8.36 PM on Friday the regulator got back to me. It says:

We are reviewing the issues that you have brought to our attention with a view to determining whether it is appropriate for us to exercise any of our statutory powers. As part of such reviews we may use the information gathering powers available to us to seek further information from the subjects of the enquiry and reach out to other gencies as appropriate. 

Once we have completed our review, we will consider whether it is appropriate for the FCA to launch a formal investigation via its Enforcement Division, whether some other form of intervention is required or whether the case should be closed with no action. In particular, an important part of our consideration is the potential seriousness of the misconduct.

As noted in our Approach to Enforcement, not all breaches of our rules or requirements constitute serious misconduct, however, where we suspect serious misconduct, we will start an enforcement investigation. We use our experience and judgement to ascertain whether this suspicion exists and there are a number of considerations we take into account when doing so. Chapter 2 of our Approach to Enforcement document provides further detail on these considerations, which include the nature of the actual and potential harm involved; the extent to which the suspected misconduct has or may affect consumers, markets or firms if we do not take action; and the public interest in investigating the matter.

etc etc etc

No doubt Zoetic’s shareholders, when not busy reporting me to the RSPCA, will consider that there is no issue here for the FCA to investigate. I disagree and here is why..

In reviewing the FCA’s Approach to Enforcement manual, the decision to enforce against a listed company is based around two areas:

  1. Is there serious misconduct? 

The FCA Approach to Enforcement manual states that the key factors it considers as likely to constitute serious misconduct are things that:

  1. Cause harm to market integrity 

  2. confidence in the financial system or 

  3. cause harm to consumers. 

In the context of Zoetic, the FCA needs to consider whether the three areas that it uses to assess serious misconduct are at play: 

  1. Harm to market integrity – Zoetic shares have risen 2733% from 3p to 82p in a matter of months to attain a market cap in excess of £160 million. Such a rise, on limited fundamental progress, should strongly suggest that market integrity issues could be at force in the form of market manipulation and pump and dump tactics. Those concerns should be heightened even further here in the context of some worrying and unusual red flags identified at Zoetic:

  • No independent Board directors – in fact the Board consists of only two co-CEOs representing a serious failing in corporate governance for a Main List company;

  • No initial scrutiny by the FCA or any other authorities as would be typical on a listing as the company used to be Highland Resources in oil and gas but has quietly pivoted into a new CBD business with no scrutiny; 

  • No advisor has visited the HQ or assets in the USA to verify they exist or do the basic checks that would be required of a normal listing; 

  • No independent verification of accuracy of public market releases as no NOMAD needed on a Main Board listing;

  • A cash balance of less than £450,000;

  • Current revenues of less than £10,000 a month;

  • No institutional investors, just retail investors where spread betting firms hold 17% of all shares;

  • Misleading statements about the business made on website (it is not vertically integrated; it is not growing hemp in Colorado; Melvin Bragg is not the Finance Director or on the Board etc);

  • Misleading RNS releases including completely contradictory statements about the success of the sale of its products (In September 2020 preliminary results it claimed “in store where Chill has been on sale for several months, they have experienced consistent increased sales, month on month”. However, in the January 2021 interim results it stated that all reported sales of £54,000 were 100% online and nothing from stores).

  • A 6% shareholder called John Story, who invested at sub 10p, continually cheerleading the message that this is a billion pound company in the making with long promotional emails sent around claiming profit potential of £900 million and being materially undervalued, and also making clearly misleading statements on share podcasts.

Market integrity, as defined by the FCA, is where ‘consumers can place their trust in transparent and open markets”. Considering the 2733% rise in Zoetic shares to a £160 million market capitalisation, based on limited fundamental news or financials such as revenues of £81,000 over the last 12 months, putting this on a valuation of nearly 2,000x revenues, it would suggest that retail investors may not be dealing in a transparent and open situation. 

Add in the lack of governance, the misleading website and RNS information by the company, and rampant marketing materials distributed by insiders with material positions bought at less than 1/10th of the current price, there must be a very strong case for market integrity issues and hence the need for the FCA to determine serious misconduct and open a case to enforce in the clear interests of protecting retail investors given the circumstances. 

  1. Confidence in the financial system – Allowing a company to be listed on the London Stock Exchange Main Board, and raise capital from UK retail investors to pursue a business in the USA that appears to be violating US federal regulation of both the FDA and FTC must surely lead to concerns about confidence in the financial system and its regulatory body oversight. Furthermore, the FCA recently issued guidance around cannabis listings in the UK and yet the only listed company on the market looks to be in immediate breach of those very requirements as set out below.

  1. Cause harm to consumers – Zoetic’s products of smokable hemp/herbal CBD infused cigarettes are acknowledged by the FDA and FTC to be harmful products for consumers on two key levels:

  1. Herbal cigarette smoking/FTC – In accepting settlement of charges against another herbal cigarette company Jodie Bernstein, Director of the TFC’s Bureau of Consumer Protection stated “These cigarettes are marketed with a natural aura, but they are neither healthy nor safe….there is no such thing as a safe smoke”. The FTC has made other herbal cigarette companies state on packs that “Herbal cigarettes are dangerous to your health. They produce tar and carbon monoxide”.

In particular, the FTC’s issue in the case of Alternative Cigarettes was “respondents have represented, expressly or by implication, by smoking Pure and Glory cigarettes, because they contain no additives, chemicals, flavourings or preservatives, is less hazardous to smokers health than smoking otherwise comparable cigarettes”. It went on to say “In truth and in fact..smoking herbal cigarettes does pose many of the health risks associated with smoking tobacco cigarettes…their smoke, like tobacco smoke, contains numerous carcinogens and toxins including carbon monoxide. Therefore the representation set forth…was and is false and misleading”.


  1. Unapproved drugs/FDA – the FDA states “CBD has the potential to harm you, and harm can happen even before you become aware of it. CBD can cause side effects”. It has only approved one CBD based drug for human consumption called Epidiolex, so every other consumable CBD product must seek approval before it can be sold to consumers. Chill CBD smokes are not approved as they are considered harmful by the FDA.,that%20can%20safely%20be%20used.

Against the backdrop of this clear harm to consumers in both the eyes of the FTC and the FDA, Zoetic in fact attempt to convey the opposite marketing message to consumers regarding smoking its CBD cigarettes stating:

  • CBD smokes are an excellent alternative to smoking cigarettes…rather than harmful chemicals, you are smoking natural herbs which may offer benefits…

  • Using CBD smokes can be a great way to fight anxiety…

  • CBD, when used regularly, can even help with depression.

  • What if we told you than hemp smokes could satisfy your cravings get be good for your overall wellbeing

  • When you smoke a Chill CBD pre roll, you are putting organic substances into your body rather than damaging carcinogens” 

  • At the Chillway we offer a safer, healthier alternative to smoking cigarettes. In you are a cigarette smoker looking for a healthier alternative, then continue reading.

The issues could not be made any more clear cut by international law firm Harris Bricken, which specialises in CBD and hemp in the US, concluding “Therefore, any health claims made about CBD infused products, including CBD smokes, will be treated by the FDA as a drug

As such, it should be very clear that the Zoetic smoking products are in violation of both FDA and FTC regulation on many levels, but most relevantly for the FCA, particularly because they are considered to be harmful enough to consumers to require stringent regulation in the first place.

The FCA states that in determining whether serious misconduct may have occurred, it looks at “the nature and severity of the actual and potential harm arising from the suspected misconduct” which may include how the misconduct may affect consumers…if we do not take action”.

There can be no doubt here. In terms of severity for consumers, it could not get any worse. Zoetic is selling a smokable product to consumers that contains tar, carcinogens and carbon monoxide, and which the FTC forces other herbal cigarette companies to clearly market as being dangerous to your health, and CBD, which the FDA considers an unapproved drug that “may put the health and safety of consumers at risk”.

In allowing Zoetic to trade on the Main Board, and raise capital from UK investors to further this clear misconduct, which is now talking about looking to sell these CBD laced herbal cigarettes to consumers via 88,000 retail stores in the USA and across 17 countries in Europe, the FCA must surely conclude that this activity will indeed cause harm to consumers globally. 

  1. If there is a case of serious misconduct, what would constitute misconduct sufficient to open an investigation? 

If serious misconduct is suspected in the case of Zoetic, in terms of harm to market integrity, confidence in the financial system and harm to consumers, then the factors considered as to whether to open an FCA investigation into a listed company include:

  1. Failure to comply with other applicable regulatory obligations

  2. Failure to comply with UK regulatory obligations

  1. Failure to comply with other applicable regulatory obligations

Clearly ‘other applicable regulatory obligations’ will include the need for an Official List company to comply with US federal regulatory bodies such as the FDA and FTC. The dynamite analysis of Zoetic’s products in the USA published on Wednesday, and the discussion here, demonstrate that Zoetic is NOT complying with those regulatory obligations, is in violation, and hence must be considered as a case of serious misconduct in the eyes of the FCA

As such, the FCA should, as a matter of urgency, reach out to the FDA and FTC to confirm their position on Zoetic products and their regulatory position. If either confirm products are deemed as new drugs or detrimental to the health of consumers, and hence in breach of regulation, then the FCA should take immediate action against Zoetic to prevent further serious misconduct.

  1. Failure to comply with UK regulatory obligations

In September 2020, the FCA clearly set out its position with respect to cannabis companies on the Full List.

Failure around this recent guidance would seriously damage confidence in the FCA, and London as a listing jurisdiction, if the only London listed company currently involved the cannabis market is violating federal regulation. 

It seems highly unlikely that Zoetic would pass the listing tests were it to have attempted to get on the Official List via the traditional listing route; however, it has managed to circumvent any scrutiny through pivoting an already listed oil and gas resource company into a cannabis company that is in violation and has had no FCA or LSE or broker oversight. 

In particular, the FCA states with respect to Overseas Companies “These companies may be admitted to the Official List, provided we are satisfied…they otherwise satisfy the criteria for listing…”. If Zoetic’s products are in breach of FDA and FTC regulation, it would surely be impossible for the FCA to be satisfied it meets the criteria to be admitted to the Official List. Accordingly it is again imperative that the FCA reaches out to the FDA & FTC to establish their views on Zoetic’s herbal smoke products and the medical claims they make in the eyes of USA regulators. 

The FCA also states for companies with Overseas operations “the company will need to satisfy us that their activities would be legal if carried out in the UK“. It is likely that Zoetic would fail this test for a number of reasons:

i) Absence of licence to handle THC

Zoetic sells hemp smokes to consumers in convenience stores which are made from American grown hemp.  US hemp will contain traces of THC. US hemp regulation stated it must contain less than 0.3% THC but that has recently been moved to 1%. However, in the UK, the law states that there must be 0% THC in any CBD product sold. As such, their activities of selling hemp cigarettes in USA gas stations outlets containing even traces of THC would not be legal if carried out in the UK. Only UK regulated products (e.g. Sativex) or Home Office licensed entities in the UK can handle THC containing products as it is a controlled substance under the Misuse of Drugs Act 1971. Zoetic’s Chill cigarettes are not regulated or authorised and nor does it not hold a Home Office licence in the UK so its activities would not be legal if carried out in the UK.

ii) Absence of MHRA licence 

The Medical & Healthcare Products Agency (MHRA) states that “We have come to the opinion that products containing CBD used for medicinal purposes are a medicine. Medicinal products must have a product licence (marketing authorisation), before they can be legally sold, supplied or advertised in the UK”. Given all the medical claims that it makes around its products from smoking cessation to helping cure depression, anxiety, inflammation etc, it is clear that were the products to be offered for sale in the UK, to substantiate those claims they would need a product licence from the MHRA. Zoetic does not have that and therefore again its activities would not be considered to be legal if carried out in the UK.

iii) Manufacturing non compliance 

For Zoetic’s herbal smoking activities to be legal in the UK, their manufacturing capabilities would require them to be registered as a tobacco factory and a registered store and comply with specific HMRC conditions (which are significant per the guidance in the link below). The law states “The manufacture of herbal smoking products, other than in registered factories, is illegal unless the products are to be used for research or experiment.” It is unlikely that Zoetic’s manufacturing facilities and outsourced arrangements in the USA would meet these UK laws around manufacture so their activities would not be legal if carried out in the UK.,used%20for%20research%20or%20experiment.

iv) Need for Chill Novel Food Application 

From March 31st 2021, Novel Foods Act will apply in the UK. That means that any company that intends to offer for sale products that allows consumers to take CBD into the body after March 31st, must have a Novel Foods Application submitted in for that product prior to March 31st 2021. Zoetic states that it is underway for Novel Food Application for its Zoetic brand in the UK which will allow that brand to continue to be sold for the time being. However, post March 31st 2021, were Zoetic to be selling its herbal/hemp Chill cigarettes, which have been laced with CBD, to deliver CBD into the lungs of consumers, it would need to have a Novel Foods Application submitted for its Chill products in the UK. This has not happened so post March 31st 2021, Zoetic would not be able to satisfy the FCA that its activities would be legal if carried out in the UK.

v) Need to comply with UK herbal products for smoking

The Tobacco and Related Products Regulation requires all producers of tobacco products and herbal products for smoking to give the government certain information before they can be sold. Zoetic would therefore need to comply with all of these conditions in order to satisfy the FCA that their activities would be legal if carried out in the UK.

Furthermore, the government sets strict regulation across labelling and presentation of herbal cigarettes. The Chill packets do not appear to comply with paragraphs 2-5 requirements so if they were offered for sale in the UK it would not be deemed to be legal.


The publicly available 85-page dossier prepared by myself and which the FCA has seen in full, with 60+ reg flags, has laid bare the potential issues that Zoetic, as a Main Board public company, faces and the risks its poses. It is also public knowledge that the issues have been brought to the attention of the FCA in February 2021. As such, in order to avoid some of the other well publicised issues around slow regulatory reactions to clearly identified issues, it is imperative that the FCA now follow up to reach a conclusion as to whether to open an investigation and subsequently take action quickly to prevent further serious misconduct. We would recommend speaking to:

  • Nick Harriss at Allenby 

  • Richard Oldworth at Buchannan

  • The Federal Drug Agency 

  • The Federal Tobacco Commission

  • The UK Food Standards Agency (overseeing Novel Foods)

At a minimum, no further misleading RNS releases should be allowed to be released or capital raised from UK investors until the FCA reaches a conclusion. Furthermore, the FCA notes that “firms should not wait for an investigation to end, or a sanction to be imposed, before acting in a way that they think is right which includes taking steps to put right harm or damage that may have been caused to consumers.”

In this case, the obvious thing for Zoetic management to do, now the key issues have been exposed, would be suspend its Chill activities in the US & Europe until it has satisfied itself, the FCA, and other regulatory bodies in the USA that its hemp/herbal cigarettes infused with CBD isolate are:

  1. Not in violation of FDA regulation 

  2. Not in breach of FTC regulation 

  3. Do not cause consumers harm and are labelled appropriately 

  4. Its website, social media messages and RNS statements are not misleading 

  5. Issues a corrective statement that allows both consumers and investors to understand where marketing or releases have been potentially misleading and what the company has done to correct so consumers can understand the risks to their products and investors can understand better the company that are invested in. It should be noted that marketing messages on the web pages the 85-page report pointed out have already started to be changed so they are less misleading. However many consumers and investors will have already made decisions off old messages so again the company should be asked to highlight what it has changed and why, not just surreptitiously amend text to try to be more compliant yet not say anything, particularly as we are dealing with serious consumer health issues around the impact of smoking its cigarettes. If consumers still believe the old message that it’s healthier and doesn’t contain harmful products, they may continue to keep smoking them and not check back on the website to see the marketing has completely changed. 

Furthermore, if the FCA suspects it is in breach of the recent guidance on cannabis listings, which appears to clearly be the case, then the shares should be suspended until the company can prove otherwise. 

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