Green Growth Brands and certain of its direct and indirect wholly-owned subsidiaries filed for insolvency protection under Canada’s Companies’ Creditors Arrangement Act (CCAA) and obtained an initial order from the Ontario Superior Court of Justice granting applicants protection under the CCAA. Ernst & Young consented to act as the court-appointed monitor of the applicants. The court granted CCAA protection for an initial 10 day period, subject to extension thereafter as the court deems appropriate, which expires on May 29. While under CCAA protection, creditors and others are stayed from enforcing any rights against the applicants.
The continuing operations of Green Growth Brands are dependent upon the company’s ability to continue to raise adequate financing, to commence profitable operations and to repay its liabilities arising from normal business operations as they become due. The CCAA filing was necessitated due to a severe liquidity crisis in the face of material matured and maturing debt, which was further exacerbated by the negative impact of the COVID-19 pandemic. The pandemic has forced the company to indefinitely suspend its cannabidiol business, ultimately resulting in the appointment of a receiver for that business and the restricting of operations at the company’s The+Source dispensaries in Las Vegas as a result of Nevada Governor Stephen Sisolak’s March 20 order limiting dispensary operations in the state. After careful consideration of all other available alternatives, Green Growth Brands’ board of directors determined that it is in the best interest of the company and all its stakeholders to seek protection under the CCAA.
All Js Greenspace, one of Green Growth Brands’ existing secured lenders, agreed to fund the CCAA proceedings through a debtor-in-possession loan facility in the initial amount of up to $1 million. An additional $6.2 million will be made available for borrowing under the DIP agreement following the initial period upon court approval at a subsequent hearing that would (i) extend the stay period; (ii) increase the amount of the DIP lender’s charge; (iii) approve a sale and investment solicitation process; and (iv) approve a stalking-horse agreement among Green Growth Brands, All Js and Capital Transfer Agency in its capacity as the debenture holder trustee of Green Growth Brands’ $45.5 million aggregate principal amount of 15% secured convertible debentures that matured May 17, 2020 and $23.717 million aggregate principal amount of 5% secured convertible debentures maturing in 2024 pursuant to which the secured credit bidders (All Js and Capital Transfer Agency) would act as stalking-horse bidders under the sale and investment solicitation process. Green Growth Brands intends to return to the court within 10 days for the comeback hearing to seek the amended and restated initial order.
The proceeds of the DIP agreement shall be used during the CCAA proceedings to fund (i) financial advisory fees and professional fees; (ii) the payment of interest and other amounts payable under the DIP agreement; and (iii) the ongoing requirements of Green Growth Brands and the guarantors (including for working capital and other general corporate purposes), in each case in accordance with a budget agreed to with the lender (the DIP budget). Green Growth Brands may not use the proceeds of the DIP agreement to pay any pre-filing obligations of the borrower or the guarantors without the prior written consent of the lender or as contemplated by the DIP budget.
The DIP agreement shall be repayable in full on the earliest of: (i) the date a demand for repayment in writing has been made by the lender following the occurrence of any event of default, which is continuing and has not been cured; (ii) the completion of the stalking horse agreement or any successful bid through the sale and investment solicitation process, in which case the amounts owing under the DIP agreement shall be repaid in full; (iii) the date on which the initial order expires without being extended or on which the CCAA proceedings are dismissed or converted into a proceeding under Canada’s Bankruptcy and Insolvency Act; (iv) the sale of all or substantially all of the property and assets of each of Green Growth Brands and guarantors; and (v) the date which is 120 days following the date that all conditions to the advance of the initial amount have been satisfied.
Advances under the DIP agreement are subject to certain customary conditions precedent, covenants and representations.
Amounts owing under the DIP agreement will bear interest at a rate of 5% per annum (with overdue amounts bearing interest at the applicable interest rate plus 2% per annum payable on demand) and have the benefit of a court-ordered charge on the assets, property and undertakings of the applicants, ranking behind (i) a charge on their assets, property and undertakings of the applicants in the maximum amount of $1 million to secure the fees and disbursements incurred in connection with services rendered to the applicants, both before and after the commencement of the CCAA proceedings by the monitor and its counsel and applicants’ counsel; (ii) a charge to secure payment under the indemnity granted by the initial order in favour of the applicants’ directors and officers; and (iii) a charge in respect of Green Growth Brands; obligations under that certain promissory note in the principal amount of $39 million dated May 15, 2019 as amended and restated on Nov. 15, 2019.
During the CCAA proceedings, it is expected that ordinary course obligations to employees and suppliers of goods and services subsequent to the filing date will continue to be met. Management of Green Growth Brands will remain responsible for the day-to-day operations under the general oversight of the court-appointed monitor.
In addition to the CCAA proceedings, Green Growth Brands’s Florida-based subsidiaries entities (GGB Florida, GGB Green Holdings and Spring Oaks Greenhouses) entered into a forbearance agreement in respect of certain events of default under, among other things, the amended and restated security agreement dated as of April 29, 2020, among the GGB Florida subsidiaries, Green Growth Brands and Green Ops Group as the secured creditor thereunder and certain loan documents originally entered in favour of Stanley W. Harris, as the representative of each seller under that certain share purchase agreement dated as of June 3, 2019, pursuant to which Green Growth Brands acquired its Florida-based cannabis business.
Pursuant to the terms of the Forbearance Agreement, Green Ops agreed not to commence a foreclosure sale of the collateral under the Florida security agreement or accelerate amounts due under the related loan documents (forbearance covenant) until June 15, 2020 (the forbearance period) as such period may be extended in accordance with the terms of the forbearance agreement.
In addition, Green Ops agreed to advance $500,000 to the GGB Florida subsidiaries, representing the balance payable under a $1 million principal amount 15% secured note dated April 29, 2020. In consideration of the forbearance covenant, Green Growth Brands and its Florida subsidiaries agreed to conduct a sales process in respect of the business, assets and undertaking of the Florida subsidiaries with the intention of entering into a binding agreement of purchase and sale prior to the expiry of the forbearance period.
Green Growth Brands and its Florida subsidiaries agreed that, upon expiry of the forbearance period, the forbearance covenant shall terminate and Green Ops shall be entitled to exercise any and all of its rights under the applicable loan documents and applicable law against the collateral, and Green Growth Brands and its Florida subsidiaries will not contest any such enforcement action pursuant to the terms of a voluntary surrender of collateral in satisfaction of debt and release agreement among the parties.
All Js may in the future, depending on various factors and subject to the provisions of the sale and investment solicitation process, the DIP agreement, orders of the court under the CCAA proceedings, the stalking horse agreement and applicable securities laws, increase or decrease its beneficial ownership, control or direction over securities of Green Growth Brands through market transactions, private agreements, treasury issuances, exercise of warrants or otherwise. All Js also may engage in discussions or negotiations with other debtholders, shareholders and other stakeholders of Green Growth Brands in connection with various matters depending on how the CCAA proceedings unfold, including regarding possible changes to the capitalization, constating documents, corporate structure or the board of directors or management of Green Growth Brands as may be appropriate in the circumstances.
Green Growth Brands owns brands, including CAMP, The+Source and 8 Fold, and cannabis dispensaries in Nevada, Massachusetts and Florida.