Toronto-based The Flowr Corp., (TSX.V: FLWR) (OTC: FLWPF), announced Thursday that the company and its subsidiaries plan to seek an order for creditor protection from the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (CCAA).
Such a filing is similar to a company in the U.S. seeking Chapter 11 bankruptcy protection.
Subsidiaries of The Flowr Corp. include The Flowr Group (Okanagan) Inc., The Flowr Canada Holdings ULC, and Terrace Global Inc.
The Flowr Group is seeking a stay of proceedings that will allow the company to conduct a sale and investment solicitation process (SISP) and facilitate a transaction that sees the company emerge from CCAA protection as a stable, more financially viable company.
If the Initial Order is granted, Flowr intends to continue normal day-to-day operations under current management. Flowr has requested the appointment of Ernst & Young Inc. as monitor, which would provide general oversight of operations.
Funding for the CCAA proceedings, the SISP, and short-term working capital is expected to come from a debtor-in-possession loan of CA$2 million from 1000343100 Ontario Inc. Flowr has already executed a term sheet with the lender, but the loan is conditional upon the protection order being granted.
Earlier this year, Flowr announced it would undertake a number of cost-cutting measures.
In June, the company cut 40% of its workforce to “flatten its organizational structure and right-size SG&A with revenue,” it said in a news release. The company said most of the cuts were targeted at senior and middle management.
Flowr also sold non-core assets, including the Kelowna Research Station research and development facility to Hawthorne Canada Limited for an aggregate purchase price of CA$15.9 million and its Flowr Forest property for CA$3.4 million. The company also sold its indirect wholly owned subsidiary, Holigen Ltd, in a cash-and-stock deal.
At the time, CEO Darren Karasiuk said, “The completion of phase one of the transformation plan better positions the Company for the current competitive landscape.”
The measures resulted in a reduction in SG&A costs of 32% and in cost of goods sold of 71% from the first quarter, according to the company. But based on the current filing, those reductions didn’t provide enough runway for the necessary restructuring.
Gross revenue for the second quarter ended June 30 increased 36% from the prior-year period to CA$2.7 million. But expenses far outstripped those gains, and the company recorded a net loss of CA$26.3 million, compared with CA$7.5 million a year ago.
The company also saw a significant decline in the amount of cannabis sold, falling to under 1 million grams for the quarter, compared with roughly 2.2 million grams a year ago.
At its current run rate, Flowr has cash to cover just over one month of operations.
Since July the company has also seen five directors resign from its board.