Pot Co. Green Growth Gets OK To Start Insolvency Sale

By Jack Queen
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Law360 (June 2, 2020, 7:46 PM EDT) -- Beleaguered cannabis company Green Growth Brands will hit the auction block after a Canadian court on Tuesday cleared its asset sale plan and approved a stalking horse bid that would see creditors buy the company for an estimated $105 million.

Green Growth, whose CBD mall kiosk business was decimated by the coronavirus pandemic, filed for insolvency protection last month. The company has defaulted on nearly $100 million in debt in recent months and has stared down a worsening liquidity crisis for more than a year.

Under the stalking horse agreement, an investment vehicle connected to the family of Ohio retail magnate Jay Schottenstein would buy the company's assets if no other bidder matches its price. The investment vehicle, All Js Greenspace LLC, owns the lion's share of Green Growth's debt.

Like many young cannabis companies, Toronto-incorporated Green Growth's dispensary operations in Nevada and planned expansions into Massachusetts and Florida were fueled by debt, and the company said it has never been cash flow positive.

That didn't blunt Green Growth's aggressive growth strategy under former CEO Peter Horvath, a veteran of Victoria's Secret and American Eagle Outfitters who spearheaded the company's failed hostile takeover of Aphria Inc., one of Canada's largest pot producers, in 2019.

Green Growth made a splashy entrance into the CBD market last summer, building up a network of 195 mall kiosks selling various CBD products. But by February, the company was looking to sell the CBD business as part of its turnaround plan, and Horvath stepped down in March.

The coronavirus pandemic shuttered the mall kiosks the same month, killing off interest in the sale, and the CBD business went into receivership in April. The company had previously reported a net loss of $34.8 million for the fourth quarter of 2019, compared with $29.9 million for the previous quarter.

Green Growth is also facing several lawsuits, including one by cannabis concentrate manufacturer Moxie, which is seeking $19 million over the pair's failed merger. Another suit was brought by a consulting firm attempting to collect on what it says is an unpaid bill.

Cannabis companies have been keeping Canadian courts busy in recent months as they file for insolvency protection and restructuring under Canada's Companies' Creditors Arrangement Act. Some firms already struggling with slackening demand and capital shortages were dealt a death blow by COVID-19 and the ensuing economic crisis.

On Tuesday, a Canadian court approved the sale of long-struggling pot grower James E. Wagner Cultivation Corp. to stalking horse bidder Trichome Financial Corp. for nearly $10 million.

Canadian cultivators CannTrust, Wayland Group Corp. and Invictus MD Strategies Corp. have all initiated CCAA proceedings to restructure and find buyers, with Wayland being the first to do so in December.

A spokesman for Green Growth did not immediately respond to a request for comment Tuesday.

--Additional reporting by Diana Novak Jones. Editing by Stephen Berg.

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