Green Growth Brands Archives - Green Market Report

Green Growth Brands Inc. (CSE: GGB) (OTCQB: GGBXF) has placed the company’s CBD business into receivership. This is typically a move to avoid bankruptcy. This was the determination from the company’s special committee of the Board of Directors.

Just a few weeks ago, Green Growth Brands closed down its CBD business, which was operating as the chain of Seventh Sense stores or kiosks. The company stated at that time that the stoppage in business was due to COVID19 and the closing of malls and retail areas. However, the company was struggling prior to the virus crisis.

The consent to the appointment of the receiver was filed on April 2, 2020, with the Franklin County Court of Common Pleas, in Franklin County, Ohio.  Materials related to the filing can be accessed via the Franklin County Clerk of Courts electronic docket, which can be found at https://fcdcfcjs.co.franklin.oh.us/CaseInformationOnline/.

Technically, the CBD Business is operated by six of the company’s subsidiaries: Green Growth Brands LLC, GGB Beauty LLC, GGB Licenses LLC, Green Growth Brands Realty LLC, GGB Kiosks LLC, and GGB GN LLC (collectively, the “CBD Subsidiaries”).  Each of the CBD Subsidiaries will be subject to the receivership order.

Going Concern

Green Growth said that aside from the CBD situation, “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 maturing debt and other liabilities or to negotiate extensions or alternate payment terms in respect of such debt.” Green Growth is trying to negotiate its obligations and has drawn down all the money available to it through All J’s Greenspace and Chiron Ventures.

All Js advanced approximately $1.5 million from its portion of the previously announced $52.3 million debenture repayment backstop commitment.  The company said it is actively pursuing alternative financing sources but there can be no guarantee that any such financing will be consummated or if consummated on what terms.

The+Source

Green Growth said it will continue to operate its cannabis business in Florida, Massachusetts, and Nevada through its subsidiaries Nevada Organic Remedies LLC, Henderson Organic Remedies LLC, Wellness Orchards of Nevada LLC, Just Healthy LLC, and Spring Oaks Greenhouses Inc.  NOR and Henderson operates the The+Source dispensaries in the Las Vegas, Nevada region, and have recently started a delivery service in response to Nevada Governor Stephen Sisolak’s March 20, 2020 order limiting dispensary operations in the state.  None of the MSO subsidiaries nor any of their respective assets will be subject to the receivership order.

In exclusive reporting by the Green Market Report, Green Growth attempted to lay off its workers without giving them back pay. Once the story was uncovered, the company was able to secure the money. On Friday, March 20, 2020, Green Growth Brands informed its laid-off workers that they would get paid. A spokesman for the company said, “At the time of the decision, the company remained uncertain of its ability to fund the payroll for the period ending today, March 20, 2020. As of this writing, I can confirm that such funding has been secured, that payroll has been initiated, and that all associates released will be paid for their time worked.”

The spokesman also confirmed that Horvath resigned voluntarily and would receive no severance pay. According to the company’s Management Information Circular, “If Mr. Horvath had been terminated by the Company without cause or had resigned from the Company for good reason as of June 30, 2019, Mr. Horvath would have been entitled to a payment of $2,550,000.”

Editors Note: This story was updated on March 23, 2020.

Since this story was published on Friday, March 20, 2020, Green Growth Brands informed its laid-off workers that they would get paid. A spokesman for the company said, “At the time of the decision, the company remained uncertain of its ability to fund the payroll for the period ending today, March 20, 2020. As of this writing, I can confirm that such funding has been secured, that payroll has been initiated, and that all associates released will be paid for their time worked.”

The spokesman also confirmed that Horvath resigned voluntarily and would receive no severance pay. According to the company’s Management Information Circular, “If Mr. Horvath had been terminated by the Company without cause or had resigned from the Company for good reason as at June 30, 2019, Mr. Horvath would have been entitled to a payment of $2,550,000.”

Original Story

Green Growth Brands (OTC: GGBXF) was paying its executive’s handsome salaries, while at the same time stiffing its hourly employees. This week the company told its Seventh Sense CBD kiosk workers that it was closing due to the Covid-19 virus. Then two days later the company told employees that the kiosks were closing for good and it couldn’t pay their back wages.

Employee Senia Cotto said, “Our last checks were delayed. They claimed it was an error on the Payroll Companies end.” Another employee who worked as a Lead Guide Austin Grishaber said, “The company paid us late two weeks ago and they said it was a mistake and that they had the payroll and we were all okay with our jobs. Yesterday we got a message from them stating that we are all basically fired and said ‘Unfortunately, we’re not in the position to fund payroll, your termination date is official as of March 19, 2020.’ they blindsided us. They had the district guides and lead guides blinded so we wouldn’t leave the company early.” Another employee Emily Rivera also confirmed that she was told there was no money for back pay.

On February 26, 2020, former CEO Peter Horvath said in this company’s earnings call about the CBD business, “While we’re currently in the process of selling the CBD business, we’re extremely proud of how we grew this business from a mere idea to products that have reached over 300,000 consumers in just 9 short months. We’re proud of our team, which includes nearly 1,000 guys in the field as well as our home office associates, all of whom developed and launched the most comprehensive topical CBD assortment in the world, an assortment with quality that is resonating with consumers, garnering an average rating of 4.5 out of 5 points, with 75% of our consumer responses at a 5 out of 5.”

Horvath resigned from his position as CEO on Thursday after the market closed and left his position on the board as well. The company has not responded to a request for comment.

No Breaks, Late Pay

While Horvath was lauding his employees, the employees were grousing on the website GlassDoor that they didn’t get breaks and were paid late. One Lead Guide from Nashville TN wrote, “Ridiculous sales goals and expectations from the home office. They have no money to send store supplies (cleaning products, bags, etc) Low inventory, using third party products for bailouts. People are literally working for “buttons” they use as incentives, hah! They’ve paid employees late more than once, which is illegal.” He went on to add, “If your shop can’t make $100 a day, you are penalized for it. WELL….you can’t force someone to buy something, just saying.”

Another part-time employee wrote, “No communication, Blatant Lies from Higher Ups, Not always paid on time, No breaks, no place to rest, standing for hours without breaks.”

A current employee from Massachusetts wrote, “Long shifts by yourself. No product to sell. $100 minimum sales a day or you get written up. You aren’t allowed to sit or take breaks your entire shift. The company has run out of money and can’t pay employees leaving most of us stranded with late bills and overdraft fees.”

The company was certainly not telling shareholders that they were paying their hourly employees late or that the kiosks had inventory issues.

Handsome Executive Salaries

The head office salaries for the most recent quarter were $5,367,010, Also included in general and administrative costs for the quarter ending December 28, 2019, were termination and severance payment of $199,293. The company paid $2.8 million for the same time period in 2018 for the head office. Stock-based compensation expenses related to stock options and restricted stock units granted were $1,649,401

For the year ending June 30, 2019, the company’s expenses for key employees included $2,397,044, for salary or consulting fees paid to key management personnel, included in consulting fees. In addition, for the year ended June 30, 2019, included in stock-based compensation expense is $1,119,345 in connection with stock awards to key management personnel and Directors. In addition, in connection with the successful award of seven additional dispensary licenses in the state of Nevada and as a condition of NOR Agreement, the company paid $1,000,000 in a bonus which was settled with the issuance of 426,992 shares of the company at the then market price per share of CAD$3.13 per share.

Maybe the unpaid employees can take some comfort in knowing that any of the stock compensation paid to the executives is essentially worthless now. The stock was lately selling at six cents down from its 52-week high of $4.49.

CFO Brags About CBD Biz Just Weeks Ago

The company’s Chief Financial Officer Brian Logan actually bragged about how well the CBD business was doing. On the February 26, 2020 earnings conference call he said, “During the quarter, we opened 56 shops, bringing the total number of shops opened to 195 across 34 states. CBD gross margin was 40%, up from 11% in the prior quarter, resulting in gross profit of $4.4 million. CBD operating expense was $16.4 million, up from $11.2 million in the prior quarter but down significantly as a percent of sales. The increase in operating expense was driven predominantly by payroll and occupancy expense related to new shops. We also incurred $3 million of advertising expense tied to the holiday marketing campaign and new shop grand openings, which will be scaled back considerably in future quarters.”

Not only were the employees bamboozled by executives, but shareholders weren’t told the extent of the company’s problems. The closest it got was writing in the company’s filing, “The Company has a working capital deficit, and therefore does not have sufficient liquidity and capital resources at December 28, 2019, to fully execute on its business plan and satisfy its commitments over the next twelve months.” Understatement of the year.

Green Growth Brands Inc. (CSE: GGB) (OTCQB: GGBXF) CEO Peter Horvath is stepping down from this position and as a member of the Board of Directors effective on Thursday, March 19. The announcement was made after the market closed.

Mr. Horvath has served as CEO of Green Growth Brands since January 2019 and as a member of the Company’s Board of Directors since July 2018.  Randy Whitaker, the Company’s current Chief Operating Officer will take over as interim Chief Executive Officer, effective immediately.  Mr. Whitaker has served as the Company’s Chief Operating Officer since February 2019.  The vacancy on the Company’s Board of Directors will be filled in due course.

Ms. Carli Posner the Chair of the Board of Directors said, “On behalf of the Board and everyone at GGB, I would like to offer my heartfelt thanks to Peter for his significant contribution and dedication to the Company and wish Peter the best for his future endeavors.”

Mr. Horvath responded, “I am humbled to have worked with such amazing professionals along this journey.  Among those individuals is Randy Whitaker, whom I am pleased has been named as interim CEO. The Company will be in good hands with such a seasoned operator at the helm, and I have full confidence in Randy to lead the Company during this difficult time.”

Covid-19 Update

Green Growth also stated that in response to the virus pandemic it has elected to temporarily close all of its mall-based cannabidiol kiosk shops in an effort order to protect its employees and customers from unnecessary exposure to the COVID-19 virus. “In connection with this action, the company will also suspend sales under its CBD e-commerce platform.” The company said it would continue to move forward with the previously announced sale of the CBD business to The BRN Group Inc. Green Growth did mention that it would continue to solicit and evaluate any potential superior offers under the go-shop rights afforded to the company as part of that announced transaction. Although with the shops closed and the e-commerce business shuttered, it is unlikely to find a better offer.

Green Growth said that its cannabis dispensaries, located in the Las Vegas, Nevada area, will remain open for business subject to additional pandemic-related directives from local authorities.

The End Of GGB?

Will GGB even survive this? The company noted that it owes $5 million to Moxie on or before February 5, 2020 (including a five-day cure period following January 31, 2020), and an additional $2 million is due in installments to ABG-Shark LLC related to the GMR Payment on or before March 31, 2020. GGB said it is working to negotiate a deferral of these obligations and has previously announced short-term financing from certain of its key stakeholders in connection therewith.

In addition to the Moxie and ABG-Shark payments, the company and its subsidiaries have material obligations that are due or that are coming due within the next 15 to 45 days.GGB has drawn all amounts available to it under the previously announced working capital backstop commitment provided by All Js Greenspace LLC and Chiron Ventures Inc. for purposes of funding the Company’s operations.  “In addition, for purposes of funding the Company’s operations, All Js advanced approximately $1.5 million from its portion of the previously announced US$52.3 million debenture repayment backstop commitment.  Notwithstanding this US$1.5 million advance from All Js, 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.”

Victoria’s Secret Revealed

The 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.

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.