Red White & Bloom Brands Inc. (CSE: RWB)(OTC: RWBYF) is pushing out its debt obligations to get some breathing room and making changes at the top of the company. The most pressing problem is the company’s debt payments, which is has kicked to 2024. RWB has restructured the terms of certain outstanding debentures issued by the company $70,040,000 and C$2,120,000 and issued a new convertible debenture in the principal amount of C$17 million.
The stock jumped on the news that RWB had gained some breathing room and popped 46% in trading on Monday as the news was released midday.
Marc Hauser wrote on his website Hauser Advisory Cannabis Musings, “This is a good example of a standard, out-of-court (bankruptcy) restructuring – a borrower giving up a fair amount of equity and control in exchange for the creditors not foreclosing on their debt and taking over the company. The existing shareholders are diluted, but not wiped out – with about 400 RWB million shares outstanding (per their June 30 financials), these convertible rights represent a fair amount of potential dilution to the existing shareholders.”
The company outlined the debt changes as follows:
- A secured debenture in the principal amount of USD $25,885,000 (“Note 1“). Note 1 matures on September 12, 2024.
- A series of secured debentures (“Notes 2A, 2B and 2C“), with an aggregate principal amount of USD $9,505,000. Notes 2A, 2B and 2C mature on September 12, 2024.
- A secured debenture in the principal amount of CDN $2,120,000 (“Note 3“). Note 3 matures on September 12, 2024.
- A secured promissory note in the principal amount of USD $5,850,000 (“Note 4“). Note 4 matures on September 12, 2024.
CEO and Chairman Brad Rogers said, “After close consultation with various debt holders, we are pleased to have successfully restructured over CAD $100 million of our short-term debt. Today’s announcement is validation that our debtholders share our enthusiasm for long-term opportunities for growth at RWB. By extending the maturity to 2024, we have a significant runway to realize the operational changes we have made and to growth the company is dedicated to achieving.”
In addition to restructuring the debt, RWB appointed Colby De Zen as President and Director of the company effective immediately and appointed Gabriel Bianchi to the Board of Directors. Mr. William (Bill) Dawson resigned from the company’s Board of Directors.
Rogers added, “The addition of Colby to the management team will further allow us to focus on margin growth, operational efficiencies, and balance sheet improvements. I want to welcome Colby to the management team and Board. Gabriel has extensive experience in lease negotiations, optimizing real estate portfolios, and foreseeing market trends. We look forward to Gabriel joining the Board of the Company upon completion of regulatory clearances; his assistance will be invaluable as we move to optimize and expand the significant footprint of locations currently held by the company in Michigan and Florida.”
Mr. De Zen stated, “I am very excited to join the management team at RWB as President. In my new role, I will streamline operations to gain efficiencies across each state, while extensively monitoring and implementing internal controls on financial reporting/planning, direct and indirect expenses and capital expenditures. By Q4, I intend to implement significant balance sheet improvements aggressively. I believe that RWB will be EBITDA positive by no later than Q4 2022 as we scale the Platinum Vape brand and its purchasing power throughout the markets we serve today and through further expansion. As a significant investor in RWB, I am committed to unlocking both current and future value for the Company. As RWB enters its next phase of evolution, I look forward to being part of a profitable growth story that all stakeholders will be proud of. ”
RWB recently reported its earnings
noting that sales jumped to $27.4 million in the second quarter over last year’s $12.1 million. The net losses were $17 million, which was also higher than the previous year’s net loss of $11.4 million for the same time period. All figures are in Canadian dollars.
However, the company also stated in its filing that its statements were prepared on a ‘going concern’ basis. The company wrote that it has accumulated losses of $144,443,890 since inception, and for the three and six months ended June 30, 2022, the company has incurred a net loss of $ 17,646,210 and $ 29,403,398 , respectively, (June 30, 2021 – $11,448,650 and $ 68,336,512 , respectively), and had a working capital deficiency of $158,137,863. RWB said it has relied on debt and equity financing to keep it going and might not have enough cash to fund acquisitions and development of assets. The company had just $2.9 million in cash and cash equivalents at the end of June.