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Law360 (August 12, 2020, 10:58 AM EDT ) Cannabis industry sprout supplier Pharmagreen Biotech Inc. sought bankruptcy protection in a Nevada federal court Wednesday, citing threats to its ability to pay lender notes and blaming COVID-19 shutdowns that disrupted its operations and business plan.
Pharmagreen Biotech CEO Peter Wojcik said in a company announcement of its filing in the U.S Bankruptcy Court for the District of Nevada that the company's troubles were tied to "toxic terms" in lender notes. The notes were lined up while the company was preparing to carry out its plan to deliver high-quality starter "plantlets" for the cannabis and hemp industry.
Due to the pandemic, Wojcik said, Pharmagreen's "process got delayed as Europe shut down for over two months, and these notes became due and as [a] result these lenders are seeking very toxic conversions that would essentially wipe out the company's valuation."
"We plan to engage all our lenders to settle debts in a way that is fair and beneficial for all parties going forward," Wojcik added.
Pharmagreen is an affiliate of WFS Pharmagreen Inc., a wholly owned Canada-based subsidiary. The company said in its announcement that WFS Pharmagreen Inc. is becoming a major producer of cannabis plantlets through a proprietary tissue culture process.
The COVID-19 pandemic dimmed Pharmagreen's outlook, however. U.S. Securities and Exchange Commission filings show the 2-year-old company was unable to deliver its most recent quarterly filing on time because of travel restrictions, business closings and other fallout.
As of March 31, in its previous 10-Q, the company reported that it had not earned any revenues from operations and, taking equity into account, had a $1.4 million working capital deficit and $4.9 million accumulated deficit and about $630,000 in total assets, mostly in the form of property.
Prior to May 2, 2018, the business had been operating as Air Transport Group Holdings Inc., providing technical advice and appraisals to the aircraft and aviation industry as well as providing sourcing for aircraft leases and parts, according to its SEC disclosures.
Under a 2018 agreement with WFS Pharmagreen, the aircraft company changed its name to Pharmagreen and converted its main business into construction of what was described as a biotech complex in Deroche, British Columbia, for use in growing starter cannabis plants.
Pharmagreen is represented by Thomas E. Crowe of Thomas E. Crowe PLC.
The case is In re: Pharmagreen Biotech Inc., case number 20-50780, in the U.S. Bankruptcy Court for the District of Nevada (Reno).
--Editing by Marygrace Murphy.
Update: This story has been updated with additional information, including case and counsel information.
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