[ad_1]
Canadian cannabis firm BZAM, which merged with The Green Organic Dutchman in 2022, has been granted creditor protection to restructure the business and pursue a sale process.
The Ontario Superior Court of Justice granted the request for creditor protection for BZAM and its Canadian subsidiaries under the Companies’ Creditors Arrangement Act (CCAA), the Pitt Meadows, British Columbia-based company said in a Thursday news release.
In an affidavit filed with the application for creditor protection, CEO Matthew Milich said the company had accumulated 112.9 million Canadian dollars ($83.2 million) in consolidated liabilities.
“The applicants have struggled with cash flow, and since January 31, 2024 in particular, the cash position of the applicants has deteriorated significantly,” according to the affidavit, which says the company’s cash position had fallen to CA$1.9 million for the week of Feb. 25, 2024.
Some of BZAM’s biggest liabilities included unpaid excise and other tax.
Court filings say BZAM had excise duties payable of CA$9.5 million.
Monthly excise tax obligations, meanwhile, amounted to about CA$4 million – almost two times more than the company’s monthly payroll of approximately CA$2.3 million.
Sales tax payable were CA$2.2 million.
In a regulatory filing last November, the company said its excise tax burden was one of the biggest challenges it faced.
“This excise tax, compounded with the 2.5% regulatory fee on gross sales, has cannabis businesses licensed by the federal government struggling under the weight of taxes and fees, in an intensely competitive market,” the company said in the filing, adding that the effective excise percentage had increased to approximately 33%.
The initial creditor protection order provides for a stay of proceedings and the approval of debtor in possession (DIP) financing.
On Feb. 28, BZAM’s existing senior secured creditor, Cortland Credit Lending Corp., agreed to provide additional financing through the DIP loan.
The stay of proceedings and DIP loan offer the business time, stability and funding to consider potential restructuring transactions and maximize the value of its assets for the benefit of creditors and stakeholders, according to the company’s release and court filings.
BZAM said it intends to seek court approval to launch a sale and investment solicitation process (SISP) for its business and assets around March 8.
In connection with the SISP, the British Columbia company said it expects to enter into a stalking-horse transaction with an entity related to an existing creditor and significant stakeholder to acquire substantially all of the business and assets of the BZAM Group.
The release did not identify the “significant stakeholder” or entity, but the court filings say the stalking-horse agreement involves a corporation related to BZAM’s largest shareholder and current chair – Bassam Alghanim – who also ultimately controls Stone Pine, which is listed as the purchaser under the stalking-horse agreement.
BZAM previously entered into a series of promissory notes worth CA$8.5 million with Stone Pine, the court filings say.
The court documents say the BZAM Group intends to immediately engage with its key stakeholders to discuss and obtain their input on the restructuring steps the applicants need to undertake to maximize value for all stakeholders.
The named stakeholders include Cortland, Stone Pine, the company’s mortgage lenders, Health Canada, the Canada Revenue Agency, its employees and customers.
BZAM enters creditor protection only two months after it completed the purchase of Final Bell Canada Inc. – whose subsidiary, Final Bell Corp., is a Health Canada licensed cannabis cultivator and processor.
Final Bell said in a statement it intends to challenge BZAM’s application seeking creditor protection.
Final Bell said it became BZAM’s second-largest shareholder and largest unsecured lender after it was acquired in January.
In its statement, Final Bell said it “believes that BZAM’s initiation of CCAA proceedings constitutes an improper use of creditor protection legislation to evade its creditors, defraud shareholders, and facilitate a related party going private transaction at an unjustified discounted value in order to circumvent a customary going private transaction requiring shareholder and creditor approval.”
Matt Lamers can be reached at matt.lamers@mjbizdaily.com.
[ad_2]
Source link
