Law360 (May 20, 2020, 6:28 PM EDT) -- Long-struggling cannabis company Green Growth Brands received insolvency protection from a Canadian court Wednesday, telling the judge it was pushed to financial ruin by the COVID-19 pandemic.
Green Growth, which is incorporated in Canada but operates cannabis businesses in the United States, and three of its subsidiaries on Tuesday filed for protection under Canada's Companies' Creditors Arrangement Act. A judge in Ontario's Superior Court of Justice on Wednesday signed off on an initial 10-day freeze on creditors and lawsuits pursuing the company, which says it has been in dire straits in terms of liquidity since early last year.
But the pandemic, which scuttled Green Growth's plans to sell its CBD business and restricted sales at its Las Vegas dispensaries, was the real kicker, the company said.
"[Green Growth] is now at the point where it has exhausted its ability to raise additional financing. [Green Growth] is unable to meet its ongoing obligations and urgently requires additional funding to maintain its operations," it said.
Green Growth says it has in excess of $100 million in secured debt. On May 17, it defaulted on a $45 million note, and in March, it defaulted on a $39 million note, it said. It was hit with another $9 million default after its plan to merge with cannabis company Moxie fell apart, it said.
The company has never been cash flow positive, it said, so it has relied on debt financing and equity to stay afloat. In early 2019, the company's liquidity crisis began.
In February, as part of a turnaround plan, Green Growth put its CBD business — which operated out of mall kiosks — up for sale. But any interest was killed off in March, when the pandemic forced the kiosks to close.
In early April, the company moved to put the CBD business into receivership.
At the same time, the company is dealing with several lawsuits. One is filed by Moxie for $19 million over their failed merger, and another is brought by a consulting firm attempting to collect on what it says is an unpaid bill.
Green Growth's marijuana business operates dispensaries and grows in Nevada. It also has land in Massachusetts, but has not yet decided whether to pursue a license to grow and process marijuana, it said. It is also developing retail and cultivation in Florida, it said.
Separately, Green Growth's Florida subsidiaries will be put up for sale as part of a forbearance agreement the company reached with the creditor that facilitated Green Growth's initial purchase of the Florida businesses, it said.
To cover the first days of its insolvency proceeding, the company got approval from the court to take $1 million in financing from All Js Greenspace LLC, it said. All Js, which also provided the company with about $4 million in cash earlier this year as it fought to stave off insolvency, has agreed to give Green Growth another $6.2 million with the court's approval.
At the next hearing, Green Growth plans to ask for approval of a stalking horse agreement with All Js and Capital Transfer Agency, it said. If approved by the court, All Js and Capital Transfer Agency will make a stalking horse bid based on the more than $70 million in credit they hold as debenture trustees.
Until then, the company will continue to be run by its officers and staff, Green Growth said.
The case is In The Matter of the Companies' Creditors Arrangement Act, R.S.C. 1985, c. C-36, As Amended and In The Matter of a Plant of Compromise or Arrangement of Green Growth Brands Inc., GGB Canada Inc., Green Growth Brands Realty Ltd. and Xanthic Biopharma Ltd., case number CV-20-00641220-00CL, in the Ontario Superior Court of Justice.
--Additional reporting by Rick Archer and Sarah Jarvis. Editing by Stephen Berg.
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