Business
Group opposes ‘fire sale’ of troubled cannabis retailer Fire & Flower
A syndicate of parties including the second-largest shareholder of Fire & Flower Holdings Corp. is opposing a proposed stalking-horse agreement between the cannabis retailer and its largest shareholder, an affiliate of convenience store operator Alimentation Couche-Tard.
Fire & Flower entered bankruptcy protection earlier this month.
In an affidavit filed with the Ontario Superior Court of Justice, the major shareholder, Shawn Dym, called the proposed sale and investment solicitation process (SISP) “truncated” and a “fire sale.”
“I believe that (Fire & Flower’s) underlying business is strong and that a fire sale at this time is not necessary and not in the best interests of all stakeholders,” Dym wrote.
Dym is co-founder and director of Green Acre Capital Fund II (Canada), which owns approximately 5% of the outstanding common shares of Fire & Flower Holdings. He is Fire & Flower’s No. 2 shareholder.
The syndicate opposing the Couche-Tard SISP also includes real estate firm Osmington and investment firm Sharno Group as well as Shalcor Management. All three entities are based in Toronto.
Fire & Flower, also headquartered in Toronto, was granted creditor protection in early June under the Companies’ Creditors Arrangement Act (CCAA), allowing the company to maintain the status quo and consult with stakeholders with a view to continuing operations.
The company, one of the largest cannabis retailers in Canada, had accumulated significant net losses of more than 200 million Canadian dollars ($151 million) since 2018.
Couche-Tard’s involvement
Couche-Tard is Fire & Flower’s senior secured creditor, unsecured creditor, debtor-in-possession lender, shareholder and proposed stalking-horse bidder.
On June 14, the Couche-Tard affiliate disclosed that it had negotiated a stalking-horse agreement with Fire & Flower.
The designation could position Couche-Tard as the initial bidder for Fire & Flower’s assets.
The agreement would kick in only if no satisfactory bid was selected in the first phase of the SISP, at which point Fire & Flower would seek court approval of the stalking-horse agreement with the Couche-Tard affiliate.
However, the syndicate argues the deal isn’t in the best interest of Fire & Flower or its investors and will not maximize stakeholder value.
On June 19, Green Acre pitched a new debtor-in-possession (DIP) facility to replace the existing DIP facility by the affiliate of Couche-Tard.
That proposed DIP deal, financed by the syndicate of lenders, would advance to Fire & Flower up to CA$9.8 million, which is the same amount as the Couche-Tard affiliate’s.
The terms of the newly proposed DIP facility are similar to the Couche-Tard DIP agreement but offers a lower interest rate (10% versus 12%) and a lower exit fee (CA$300,000 versus CA$400,000).
Crucially, the proponents say it would enhance the prospect of successful restructuring Fire & Flower and the chances of a plan of arrangement, “which possibility is foreclosed under the Couche Tard DIP Facility Agreement.”
W. Brett Wilson, an investment banker who had been on the CBC TV business show “Dragons’ Den,” is among those on Green Acre’s leadership team.
In his affidavit, Dym argues that the proposed SISP and stalking-horse agreement are the culmination of a “loan to own” strategy devised by Couche-Tard.
“In short, I believe that, if the applicants’ proposed SISP and stalking horse agreement are approved, Couche Tard is likely to become the sole owner of (Fire & Flower) in about a month from now for no cash consideration, with all subordinate debt and equity interests wiped out,” Dym’s affidavit contends.
Rival sought to buy assets
The latest court documents also reveal that, in the days leading up to the bankruptcy protection filing, Fire & Flower received a letter of intent from rival Canadian marijuana retailer Pop’s Cannabis Co. for the purchase of up to 32 stores.
According to the nonbinding term sheet contained in the court filings, Pop’s offer was worth CA$20 million.
“I understand that (Fire & Flower) did not meaningfully engage with Pop’s Cannabis following receipt of the Pop’s Offer,” Dym wrote in his affidavit.
“At my urging, the chairman of (Fire & Flower’s) board spoke to one of the principals at Pop’s Cannabis but negotiations were not opened, and a formal response was not provided.”
The affidavit also notes that Fire & Flower’s market capitalization peaked at around half a billion dollars in February 2021 when its shares traded at roughly CA$15.
On the day of Fire & Flower’s CCAA filing, its shares had fallen to around CA$0.29, giving it a market capitalization of approximately CA$13 million.
“As such, it is obvious that, absent a true financial restructuring as opposed to sales process, thousands of retail shareholders will lose the entirety of their investment alongside Green Acre and millions of dollars of shareholder value will be destroyed,” the Dym affidavit notes.
Source: https://mjbizdaily.com/group-opposes-fire-sale-of-troubled-cannabis-retailer-fire-flower/
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/
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.”
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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