Green Growth Sells Off CBD Biz As The Board Says It Has Limited Alternatives

Green Growth Brands Inc. (CSE: GGB) (OTCQB: GGBXF) announced that The BRN Group Inc. has agreed to acquire the company’s cannabidiol business.  The company and an affiliate of BRN have executed a “stalking horse” asset purchase agreement in respect of the CBD Transaction pursuant to which the Purchaser will acquire all of the assets and assume the current liabilities and certain other obligations of the CBD Business.

The company said in a statement that at least two-thirds of the independent members of the Board have determined that Green Growth Brands is in serious financial difficulty with limited alternatives. “As such, GGB intends to rely on the exemption from the minority shareholder approval requirements of MI 61-101 based on the financial hardship exemption.”

“While we are excited by the consumer demand signals we saw in the CBD Business during the quarter ending December 28, 2019, and we remain confident in its future potential, the CBD Business remains in its nascency,” said Peter Horvath, Chief Executive Officer of GGB. “With high-potential in the future comes material overhead costs and other obligations in the near term.  These near-term overhead costs and other obligations, together with constraints on liquidity, have posed significant challenges that have hindered us from growing the CBD Business to its full potential. At the same time, our MSO Segment continues to generate positive EBITDA despite constraints on our ability to fully execute our MSO business plan due, in part, to previously disclosed legal challenges in Nevada,” added Horvath. “In light of these factors, we have determined it necessary and appropriate to sell the CBD Business and focus on executing our MSO business plan.  The board has also formed a special committee to commence a strategic review, which will include consideration of other cost-savings measures, designed to position the Company on a pathway to achieve financial stability and ultimately a platform through which we can achieve sustainable profitability and growth.  We are committed to significantly reducing our overall operating costs and extending our cash runway while better positioning the company to refinance its debt and raise additional financing in the future.”

We Know Retail

Green Growth Brands is comprised of former executives from Victoria’s Secret and DSW Shoestores. The company launched with the attitude that cannabis retailers just didn’t understand retail and that these retail experts would be able to show the industry how it is done. The company proceeded to open dozens of CBD stores in mall settings.

Apparently the significant challenges and company overspending weren’t enough to get customers in the door. In addition to selling off the CBD business, Green Growth has also had to ask its debt holders for more time and is going to raise more money. It has also implemented a reorganization plan to save $4 million.

Going Concern

At the quarter ending December 28, 2019, the company had a working capital deficit of $133,478,662 and used cash for operating activities of $12,589,708. “There remains a significant risk that the company will be unable to realize sufficient cost savings, find sufficient sources of financing for on-going working capital requirements and other material obligations that are due or maturing in the short term or to negotiate extensions or alternate payment terms in respect of such debt.”

GGB has said that it has drawn all amounts available to it under the previously announced working capital backstop commitment provided by All Js Greenspace and Chiron Ventures Inc. for purposes of funding the Company’s operations.  All Js has advanced approximately $1.5 million from its portion of the previously announced $52.3 million debenture repayment backstop commitment.  “There is no guarantee that either of the Backstop Parties will permit additional funds to be drawn from the debenture repayment backstop commitment for purposes of funding the Company’s operations.”

GGB said it still hopes to raise up to $30 million in a non-brokered private placement of common shares to provide funding for the MSO Segment of its business following completion of the CBD Transaction.  The company said that All Js Greenspace has agreed to subscribe for $10 million of the proposed $30 million Private Placement.

Restructuring

GGB said that the holders of its outstanding 8% secured convertible debenture totaling roughly $23,717,000 aggregate principal amount of 8.00% that could have matured on October 18, 2020, have agreed to push that out to 2024.

Earnings

In addition to the big restructuring news, GGB also announced its fiscal second-quarter news. Total revenue for the quarter was $21.1 million, which was a sequential increase of 66% over the prior quarter. The company broke it down with CBD revenue at $11.0 million, a sequential increase of 113% over the prior quarter and MSO (multi-state operator) at $10.1 million, a sequential increase of 33% over the prior quarter. Despite that, the net loss before taxes for the quarter was $34.8 million.

The company is delaying its conference call on earnings until Wednesday.

 

 

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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