Business
Canadian marijuana producer Phoena winds-down business, blames high taxes
Phoena Group says this cannabis facility in Pelham, Ontario, has an appraised real estate value of CA$28 million. (Photo by Matt Lamers)
Canadian cannabis producer Phoena Group has been granted creditor protection and is winding down its operations, the company said in court documents.
The Vaughan, Ontario-based company – formerly called CannTrust – said it no longer has the financial footing to continue operating.
As a result, Phoena plans to immediately halt the cultivation of new plants, destroy cannabis inventory not yet released for sale and lay off 87 employees, although upward of 238 of its workers will be affected.
CannTrust was one of the leading cannabis producers in Canada until it became embroiled in a cultivation scandal in 2019, with nearly 600 employees at the time and 19 million Canadian dollars ($14 million) in quarterly sales.
In the initial application under Canada’s Companies Creditors’ Arrangement law (CCAA), Phoena listed many challenges facing the company, including the oversupply of cannabis products in Canada, competition from other producers, over-regulation and excessive taxation.
Geoffrey Morawetz, chief justice of the Ontario Superior Court, issued the order under the CCAA last week at the request of Phoena.
“The applicants have debt in excess of CA$5 million, are insolvent, and are facing a liquidity crisis,” according to the CCAA filing.
Phoena owes roughly CA$1.88 million to the federal government, including:
- CA$911,893 to the Receiver General for Canada.
- CA$870,506 to the Canada Revenue Agency.
- CA$95,799 to Health Canada.
The company also said the industry faced “considerable initial over-exuberance,” resulting in the number of licensees rising from about 100 on the day of legalization in October 2018 to approximately 950 today – a roughly tenfold increase in competition.
Wind-down terms
Darren Karasiuk, a former Aurora Cannabis executive, is leading the wind-down as chief restructuring adviser.
As part of the wind-down, the company’s property in Fenwick, Ontario, is expected to be listed for sale, and inventory and equipment will be liquidated.
“I believe a liquidation and orderly wind-down of the Applicants is in the best interests of the Applicants’ creditors and other stakeholders,” Phoena’s interim CEO, Cornelis Pieter Melissen, said in an affidavit.
Melissen said overregulation has been an issue for the Canadian cannabis industry from the beginning, “and I am aware of a number of otherwise well-run cannabis businesses that have failed, or continue to struggle, due to factors such as excessive taxes, complex regulatory requirements, government delays in licensing, and limitations on dosage size, packaging and marketing.”
“In addition, certain government purchasers/retailers have experienced internal purchasing, distribution and delivery issues, among other problems,” Melissen wrote in the affidavit.
The company’s court filing cited MJBizDaily data showing that Canada’s federally licensed producers destroyed a record 425 million grams (468 tons) of unsold, unpackaged dried cannabis in 2021.
For the fiscal year ended Dec. 31, 2022, Phoena recorded a net loss of CA$24.8 million on sales of CA$13.2 million.
The federal government imposed CA$1.82 million in excise taxes that year, representing almost 14% of the company’s gross revenue.
In the first month of 2023, Phoena said, it lost CA$317,000 on gross sales of CA$1.2 million.
Phoena haunted by CannTrust past
Melissen said Phoena faced several additional challenges stemming from the time it was known as CannTrust.
In September 2019, Health Canada partially suspended CannTrust’s cannabis licenses at its facilities in Vaughan and Fenwick for noncompliance with federal cannabis legislation.
Earlier that summer, Canada’s federal regulator was notified of “unlicensed” growing taking place in several of CannTrust’s cultivation rooms.
Three of the company’s former executives were acquitted of all charges in late-2022 after the case collapsed.
The charges came from a nearly two-year joint investigation by the Ontario Securities Commission (OSC) and Royal Canadian Mounted Police (RCMP) after a whistleblower alerted Canada’s cannabis regulator in 2019 about five “unlicensed” cultivation rooms the company had been operating since 2018.
CannTrust’s licenses were reissued by the federal government on Sept. 14, 2020, and Dec. 15, 2020, respectively.
In 2022, CannTrust Holdings exited court-supervised CCAA proceedings after completing a financing led by Marshall Fields International B.V., which is a subsidiary of Kenzoll B.V., a Netherlands-based private equity investment company.
Marshall was one of the investors that acquired 90% of the equity of CannTrust Equity, which owned CannTrust.
Before its regulatory issues, CannTrust was listed for trading on the Toronto Stock Exchange and the New York Stock Exchange.
Source: https://mjbizdaily.com/canadian-marijuana-producer-phoena-winds-down-business-blames-high-taxes/
Business
New Mexico cannabis operator fined, loses license for alleged BioTrack fraud
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Business
Marijuana companies suing US attorney general in federal prohibition challenge
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Business
Alabama to make another attempt Dec. 1 to award medical cannabis licenses
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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