The company’s decision to file for bankruptcy underscores the ongoing challenges in the sector.
Fire & Flower Holdings Corp. (OTCQX: FFLWF), a major Canadian cannabis retailer, is seeking creditor protection under the Creditors Arrangement Act (CCAA), the company said Tuesday.
The company and a string of its subsidiaries have received an order from the Ontario Superior Court of Justice for creditor protection, marking a notable — yet foreseen — shift in its financial circumstances.
Previously, Fire & Flower has been open about its active pursuit for additional financing to fund its operations. The company tapped a financial advisor in May to explore its options. After careful evaluation of all alternatives, the company’s directors decided that applying for creditor protection under the CCAA was the best course of action. At the end of March, Fire & Flower reported it was down to $8.2 million in cash and negative working capital of $12.8 million. In addition to those poor numbers, Fire & Flower also reported that at the end of the first quarter, it had a negative cash flow from operating activities of $2.6 million and an accumulated deficit of $314.3 million.
The Ontario Superior Court of Justice’s initial order includes several key provisions, such as a stay of proceedings, approval of a debtor-in-possession loan, and the appointment of FTI Consulting Canada Inc. as the monitor for the Fire & Flower Group. The stay of proceedings is designed to facilitate the development of an orderly process to streamline operations and maximize the value of the company’s assets for stakeholders, it said.
The company’s management team will continue to oversee the day-to-day operations, with general oversight provided by the appointed monitor.
To fund the CCAA proceedings and meet short-term working capital needs, an affiliate of Alimentation Couche-Tard Inc. is providing the company with a bankruptcy financing loan worth C$9.8 million.
Still, Couche-Tard and the loaning company are related to Fire & Flower, which makes the loan a related party transaction under Canadian securities rule.
Usually, these kinds of deals need a formal value check and approval from shareholders who don’t have a big part of the company — but the loan doesn’t need that, and the company will use an exception to not need approval from the small shareholders.
The Toronto Stock Exchange is expected to place Fire & Flower (TSX: FAF) under delisting review following the announcement.
The bankruptcy filing represents a crucial development for Fire & Flower, a company that has been a key player in Canada’s legal cannabis market. The company’s decision to file for bankruptcy underscores the ongoing challenges in the sector. (Full Story)