This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.
Skymint, one of Michigan‘s largest marijuana cultivators and retailers, is now under the control of a receiver as the industry faces an increasingly difficult market in the state.
The action by the Ingham County Circuit Court in Lansing signals what could be one of the largest marijuana company failures in the U.S. in the nearly decade-long span since the substance was legalized in certain states. It is also the largest corporate collapse in Michigan’s brief history of recreational marijuana since the start of the industry in late 2019.
Skymint, which primarily operates under the parent company of Green Peak Innovations Inc., owes more than $127 million to Canadian investment firm Tropics LP, according to a lawsuit filed in the Ingham County court on March 3.
The lawsuit alleges Skymint was burning through $3 million in cash per month and generated only $110 million in revenue in 2022, $153 million below its forecast of $263 million in sales for the year. A second lawsuit was filed concurrently in Oakland County Circuit Court by New York-based cannabis investment firm Merida Capital Holdings and its affiliates against Green Peak and its executives alleging misrepresentation of financials and mismanagement.
Ingham County Circuit Court Judge Joyce Draganchuk appointed immediately Gene Kohut, a partner at Detroit-based business advisory firm Trust Street Advisors, as the receiver in what is likely the only recourse for the investor. Marijuana companies cannot avail themselves of financial obligations in bankruptcy court. Marijuana remains a Schedule 1 narcotic under the federal Controlled Substances Act, leaving marijuana businesses without the benefit of protection under the U.S. bankruptcy code.
Gov. Gretchen Whitmer signed amendments to the state marijuana laws to allow for receiverships in 2020.
Green Peak did not respond to a request for comment.
Michigan’s marijuana industry has suffered an epic price collapse due to product oversupply — recreational marijuana retail prices have plummeted from $512.05 per ounce of flower to just $80.16 per ounce of flower in January — effectively eliminating margins for many businesses.
Skymint was an early entrant into the market and blazed an aggressive growth strategy, currently employing more than 600 across 24 retail dispensaries around the state and three indoor grow operations in Dimondale and Lansing.
But its strategy appears to have been unprepared to tackle falling prices.
Lenders Kept Lending
Tropics LP, a subsidiary of Calgary-based Sundial Growers Inc.’s (NASDAQ: SNDL) investment firm SunStream Bancorp Inc., loaned Green Peak $70 million in September 2021 towards the acquisition of competitor 3Fifteen Cannabis and its 12 dispensaries in Detroit, Grand Rapids, Ann Arbor, Flint, and elsewhere. Merida, a majority shareholder in 3Fifteen, also lent $8 million toward the 3Fifteen purchase.
Under the Tropics promissory note, Green Peak agreed to repay the lender in full by September 2025 at an interest rate of 12.5 percent, compounding monthly, as well as sell some common shares of the company to Tropics, according to the lawsuit.
Under the agreement, Green Peak agreed to maintain a minimum cash balance of $7.5 million, which Tropics alleges in the suit that it failed to do in March last year. In response, Tropics loaned Green Peak another $5 million, raising the loan total with fees to nearly $81.5 million.
Green Peak did not meet its new loan obligation in June 2022 after failing to raise an additional $15 million in new funding, according to the suit. The company also failed to pay additional fees to Tropics, pay back rent on its E. Jolly Road facility in Lansing and pay certain taxes, according to the lawsuit.
The two parties entered into another agreement in November, which included Tropics paying more than $5.8 million toward overdue sales and excise taxes for Green Peak.
Tropics alleges in the court filing that Green Peak’s daily sales revenue has dropped from $356,953 in April 2022 to just $184,579 in January of this year, exacerbating an already bad financial picture.
Green Peak owes nearly $4 million in sales and excise taxes by March 25, the suit alleges, and the landlord of its leased cultivation facility in Dimondale is attempting to evict the company for owing roughly $1.1 million in rent.
Tropics is asking the receiver to take possession of Green Peak’s assets.
“Absent appointment of a receiver, defendants’ assets are subject to waste, and plaintiff will suffer severe and irreparable damage unless in the hands of a receiver …,” the suit says. “(The receiver should) take all necessary action to preserve the value of the assets, all subject to the direction of the court during the pendency of those proceedings and until the assets are sold.”