Pot Co. Cites Force Majeure To Skip Payment On $35M Debt

By Jack Queen
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Law360 (June 30, 2020, 5:17 PM EDT) -- A Canadian cannabis holding company with properties in several U.S. states has invoked force majeure to delay an interest payment on $35 million in debt, saying the coronavirus pandemic has made raising capital "virtually impossible."

Vancouver-based Nabis Holdings Inc. said Monday that it will miss an 8% quarterly interest payment due to bondholders on Tuesday, citing an overall decline in public cannabis markets and "extraordinary market conditions" that have tightened its liquidity.

"Despite the company's best efforts, management has not been able to secure further rounds of financing to execute on the company's development initiatives," it said in a news release. "The company, as a result of the pandemic, will be deferring the interest payment obligation."

Nabis said its indenture agreement allows for deferral of interest payments in the event of an epidemic under a force majeure clause, a type of contractual trapdoor for unforeseen catastrophes. The unsecured convertible debentures in question are set to mature in March 2022, the company said.

The cannabis industry was one of the earliest to see contract suits involving force majeure claims as the pandemic took hold, due in part to a sectorwide downturn that was intensifying before the pandemic brought the global economy to the brink.

Some companies saw a welcome bump in sales as customers stocked up on cannabis to ride out lockdowns, but a wave of pared-back or scrapped merger deals has continued. Capital markets, barren for the marijuana industry even in good times, have cinched up tightly, forcing some firms to accept less-than-favorable terms and high interest rates to stay afloat.

Nabis offered some upbeat news Monday, saying revenues at its dispensary in Arizona have increased by nearly 90% with gross margins hovering around 50%. The company said it also cutting costs aggressively and moving in the "right direction" toward profitability.

"COVID-19 has made raising capital virtually impossible during the global pandemic, but we are very pleased with the increases we are seeing in top-line revenue at our dispensary in Arizona," CEO Shay Shnet said in a statement.

Nabis invests across several sectors including real estate and cannabis. The company operates a dispensary and edible production facility in Arizona and is currently building a cultivation facility there, according to its website. Nabis says it is also building out a stable of dispensaries in Michigan and a production facility in Washington state.

In March, Nabis scrapped a planned purchase of a dispensary in California for $5.6 million, including $3.7 million in debt. The company cited the cannabis market downturn and noted that capital markets are "no longer helping fuel growth."

Nabis did not immediately respond to a request for comment Tuesday.

--Additional reporting by Diana Novak Jones. Editing by Michael Watanabe.

For a reprint of this article, please contact reprints@law360.com.

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