Lowell Farms Inc. (CSE: LOWL) (OTCQX: LOWLF) agreed to sell its “Lowell Smokes” and “35s” brands and associated intellectual property to Lowell Brands LLC. This newly formed Delaware limited liability company is being called BrandCo. In return, the company said that noteholders have agreed to forgive all debts the company owed under the Debentures. In addition, the company’s Chairman George Allen is leaving to be replaced by Ann Lawrence.
Shares fell by 7% to lately sell at four cents per share.
Lowell Farms told shareholders in January that the company was in trouble and it was reviewing its strategic alternatives. Lawrence was part of the group looking at options to save the company. In particular, the company was facing a debt of roughly $23 million from various debentures that would be due in October 2023.
Allen, on behalf of Geronimo Capital, which was the collateral agent of the Debentures, offered to settle the Debenture obligations by way of an asset transfer and share issuance. The committee saw no other alternatives to Geronimo’s offer. Allen controls Geronimo, making this a related party transaction.
“This transaction is an important step for the future of Lowell Farms as it allows for the relatively seamless continuity of business while resolving the need for incremental capital as well as impending debt maturities,” said George Allen of Geronimo Capital, LLC. “The team at Lowell Farms is the best in the business and our partnership with them is as strong as it has ever been.”
As noted, the debt will be forgiven and BrandCo will acquire approximately 100 million shares of the company’s subordinate voting shares which represent no more than 49% of the outstanding number of subordinate voting shares. The company said it will receive future payments equal to 15% of net revenue received by BrandCo in connection with the Assigned Contracts for a period of six months following the Closing Date. The company will also receive a 42-month exclusive license agreement for use of the “Lowell Smokes” and “35s” brands within the State of California.
In November, Lowell reported to shareholders that sales had fallen by 34% sequentially to $8.7 million and dropped by 31% from last year. Lowell noted that it changed the accounting for slotting fees paid to retail partners during the quarter. In a statement, the company said, “Previously, these fees had been booked as sales & marketing expenses and are now being treated as a deduction from revenues. The change in the accounting resulted in a $0.7m reduction in Q3 revenues, $0.4m of which was related to prior periods.”
The company delivered a net loss in the third quarter of $4.8 million which was an improvement over last year’s net loss of $8.7 million. It included a $2 million gain related to an ERC credit received.
The company has continued to push ahead and in January told the market that it would debut its award-winning cannabis products at recreational and medicinal dispensaries in Arizona. The company partnered with cannabis operator The Pharm, LLC to launch multiple products in 2023.
michael g mclaughlin
March 17, 2023 at 12:53 pm
Lowell is perfect example that expanding by borrowing money will not work. The only different between Lowell and say the big boys is they have money to satisfy their debt load. But in the end, they all will pay the piper. But you cannot tell Americans about business, because they invented business and know it all. Nobody in the weed business wants to start small and grow the company organically. OH no, they want to borrow millions and millions expand like a game of monopoly. I best guess is the industry in 5 years will be mom and pop shops and growers.