USA Firms look for bankruptcy protection in Canada

chex1111

Well-Known Member
Pot Firms’ Grim Reality: Cash Crunch, No U.S. Bankruptcy Access

Kristine Owram and Olivia Rockeman
BloombergDecember 17, 2019
1 Comment

Pot Firms’ Grim Reality: Cash Crunch, No U.S. Bankruptcy Access
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(Bloomberg) -- It was only a year ago that exuberance enveloped the marijuana industry. Legalization was spreading and the growth potential seemed boundless.
But that bubble has burst as the reality of a difficult regulatory landscape sunk in. Since March, stocks are down by about two-thirds. Capital markets have largely frozen for all but the strongest companies. And now a cash crunch is leaving some on the verge of going bust. Only, thanks to the illegal status of cannabis under U.S. federal laws, firms there are blocked from seeking protection in bankruptcy court.
The industry’s problems have become so dire that one senior executive at a large cannabis company predicts that as many as a dozen smaller companies may fail by the second quarter of 2020. The executive, who asked not to be identified and declined to name specific firms, said that in the past three months companies have been calling more frequently with urgent, last-ditch attempts to be acquired.
Some of those companies, which are both public and private, are two to four weeks away from missing payroll and none of them is an attractive takeover target, the executive said.
For U.S. firms, this poses an intractable problem: Bankruptcy is governed by federal law, which considers marijuana an illegal substance. This means they can’t get Chapter 11 protection from creditors or a centralized sale process. Without that, the result could be a state-by-state scramble by creditors for assets.
The U.S. bankruptcy trustee, which serves as a watchdog over the court process, “has taken a hard-line position on this,” said Sean Gordon, partner at Thompson Hine LLP. “It is incredibly difficult for a marijuana-related business to file and not get their case dismissed.”
In Canada, bankruptcy filings have already begun. Wayland Group Corp., one of the first Canadian cannabis companies to be awarded a cultivation license in 2014, filed for protection from creditors earlier this month. DionyMed Brands Inc. filed for receivership in October when a creditor demanded immediate payment of a C$25 million loan, and Ascent Industries Corp. has been reorganizing under court supervision since March.
While the smallest players are most at risk, better-known companies are also running low on cash. Los Angeles-based MedMen Enterprises Inc. said last week it reduced corporate staff by more than 40%. It also issued $27 million of shares at 43 cents each, 14% below the stock’s Dec. 10 closing price.
In Canada, Green Organic Dutchman Holdings Ltd. said Friday it’s received a 13% first-lien credit facility from private lender Maynbridge Capital, backed by all of the company’s assets. TGOD, as it’s known, had previously said it was unable to secure traditional sources of financing on acceptable terms, while its cash pile dwindled to C$24 million ($18.1 million) as of Sept. 30, down from C$214 million at the beginning of the year.
Limited Options
“Forget being able to cover capital expenditure plans; some companies need to raise capital just to cover accounts payable,” MKM Partners analyst Bill Kirk said in a December note.
Cheaper debt is gradually becoming more available to pot companies, but it’s mostly flowing to those that are already turning a profit.
For U.S. companies, options for capital are limited from the outset since traditional U.S. banks -- hamstrung by federal law -- will rarely do business with them. At the same time, the federal tax code bars cannabis companies from taking tax deductions from normal business operations.
In states such as California and Oregon, where laws allow for unlimited licenses, companies face particular risk of distress because of heightened competition, said Josh Horn, law partner at Fox Rothschild LLP in Philadelphia.
“Thousands are competing for smaller pieces of the pie,” he said. “You have flooded markets and price depression.”
Rather than seek relief through traditional bankruptcy, distressed cannabis companies operating in the U.S. will have to follow state-specific receivership or wind down proceedings, Horn said.
When California and Oregon legalized marijuana, they added unique provisions that give cannabis creditors leeway to take over business operations or sell off inventory. Other states like Pennsylvania didn’t include such provisions in their marijuana laws, Horn said, making it harder for creditors to take ownership of assets.

Canadian Path
Cannabis companies with operations in multiple states, meanwhile, would have to follow separate wind-down proceedings in every state in which they own assets.
An alternative may be at hand for U.S. cannabis companies that trade on Canadian stock exchanges.
“We’re actively exploring the use of Canada as a jurisdiction for U.S. operators who have businesses in Canada,” said Michael Smith, a New York-based partner at the Greenspoon Marder LLP law firm. He’s meeting with Canadian lawyers and accounting firms to discuss the possibility of U.S. companies filing for bankruptcy in Canadian courts.
Ultimately, the distress could be good for the industry, said Vivien Azer, analyst at Cowen & Co.
“Over time, having a shakeout and seeing some companies go bankrupt is going to be very helpful to the industry,” Azer said. “We need to see the marketplace get cleaned up.”
To contact the reporters on this story: Kristine Owram in New York at [email protected];Olivia Rockeman in New York at [email protected]
To contact the editors responsible for this story: Brad Olesen at [email protected], ;Rick Green at [email protected], Larry Reibstein, Shannon D. Harrington
For more articles like this, please visit us at bloomberg.com
 

chex1111

Well-Known Member
Notice Canadian companies who operate in the USA get first chance for bankruptcy protection.
The Canandian stock exchange is a joke when it comes to oversight. Remember when they thought Tilray was worth more than Lowlaws and Sun Life Financial? No one at the exchange looked at the Future Potential Revenue to see the sales required are more than the total sales for the entire planet.
 

cannadan

Well-Known Member
Sung to American pie by Don McClean

A long long time ago
I can still remember how
That weed used to make me smile
And I knew if I had my chance
That I could put on corporate pants
And grow me a factory full of plants
maybe turn a profit for a while
But February made me shiver
With our stock price not able to deliver
Bad news on the corporate front
no room to store even one more blunt
I can't remember if I cried
When I read how deep the stock price dived
it touched medical patients deep inside......
So
BYE BYE Canadian WEED PIE
drove the Chevy to the weed vault but the weed vault was dry,
And them LP employees smoking BM weed were high,
saying
today's the day the legal cannabis died
yes This'll be the day that It died



parody only
 

WHATFG

Well-Known Member
An alternative may be at hand for U.S. cannabis companies that trade on Canadian stock exchanges.
“We’re actively exploring the use of Canada as a jurisdiction for U.S. operators who have businesses in Canada,” said Michael Smith, a New York-based partner at the Greenspoon Marder LLP law firm. He’s meeting with Canadian lawyers and accounting firms to discuss the possibility of U.S. companies filing for bankruptcy in Canadian courts.
What a pile of shit....
 
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