Green Growth Brands Inc. (OTCQB: GGBXF) had earlier this week announced that it had defaulted on its debentures due this month, now it is headed to the Canadian equivalent of bankruptcy. Green Growth said that has filed for insolvency protection under the Companies’ Creditors Arrangement Act (Canada) and obtained an order from the Ontario Superior Court of Justice granting the Applicants protection under the CCAA. Ernst & Young Inc. has consented to act as the Court-appointed monitor.
Green Growth said that the Court has granted CCAA protection for an initial 10 day period, subject to extension thereafter as the Court deems appropriate, which expires on May 29, 2020. While under CCAA protection, creditors and others are stayed from enforcing any rights against Green Growth.
Green Growth said it had to file for insolvency due to maturing debt and the effects of COVID-19 on its one dispensary The+Source which is located in Las Vegas, Nevada. The lack of tourists has caused a severe drop in sales in many of the companies located there. The company also closed its CBD chain of stores called Seventh Sense, when the malls were closed Although Seventh Sense was losing money prior to the pandemic. “After careful consideration of all other available alternatives, GGB’s board of directors determined that it is in the best interests of the Company and all its stakeholders to seek protection under the CCAA.”
All J’s Greenspace Lending
All Js Greenspace seems to have a blank checkbook when it comes to Green Growth Brands, but it may end up owning the company since it probably won’t be able to pay back all the money that All Js has forwarded. It has agreed to fund the CCAA proceedings through a debtor-in-possession loan facility of up to US$1 million. An additional $US6.2 million will be made available for borrowing under the DIP Agreement following the Initial Period upon Court approval at a subsequent hearing that would (i) extend the stay period; (ii) increase the amount of the DIP Lender’s Charge (as defined below); (iii) approve a sale and investment solicitation process and (iv) approve a stalking-horse agreement among the company and All Js and Capital Transfer Agency in its capacity as the debenture holder trustee of the Company’s (A) US$45,500,000 aggregate principal amount of 15.00% secured convertible debentures that matured May 17, 2020, and (B) US$23,717,000 aggregate principal amount of 5.00% secured convertible debentures maturing in 2024 pursuant to which the Secured Credit Bidders would act as stalking-horse bidders under the SISP.
The company’s Florida-based subsidiaries entities have entered into a forbearance agreement as of April 29, 2020, among the GGB Florida Subsidiaries. Green Ops has agreed not to start a foreclosure sale of the collateral under the Florida Security Agreement or accelerate amounts due under the related loan documents until June 15, 2020. In addition, Green Ops has agreed to advance US$500,000 to the GGB Florida Subsidiaries, representing the balance payable under a US$1 million principal amount 15% secured note dated April 29, 2020.
In consideration of the Forbearance Covenant, the Company and Florida Subsidiaries have agreed to conduct a sales process in respect of the business, assets, and undertaking of the Florida Subsidiaries with the intention of entering into a binding agreement of purchase and sale prior to the expiry of the Forbearance Period.
Slow Train Wreck
Green Growth brands built its reputation on the back of its retail executives. Its former CEO Peter Horvath is now the CEO at Hightimes Holding Corp. These executives leading Green Growth Brands were mostly made up of former executives from Victoria’s Secret owned by L Brands, which has struggled after the lingerie failed to acknowledge a cultural departure from hyper-sexual images of women. The group mostly knew how to operate in volume sales with stores plastered all over malls. The plan was to create a chain of CBD stores not unlike Bath & Body Works also owned by L Brands.
The company paid Authentic Retail Concepts roughly $2 million in stock to help it foster a relationship with Simon Malls for the Seventh Sense CBD kiosks. The group planned to open over 100 stores in a year. In a sign of ‘jumping the shark’, there were deals signed to sell Seventh Sense CBD products in DSW Shoe Stores. Many of the ex-DSW executives had also joined with Green Growth Brands.
The sales never materialized quickly enough to cover the fast-tracked expansion and the losses mounted. This is the point at which the company decided to sell Seventh Sense and clean house. Many in the industry may recall Horvath’s brash remarks that the cannabis industry just didn’t understand retail and that experienced retailers were needed in the industry. No doubt many cannabis industry insiders are having the last laugh now.