(Bloomberg) — Green Growth Brands Inc., once a suitor of Aphria Inc., is selling its CBD business and restructuring debt amid what the company is calling “serious financial difficulty.”
In a further sign of the problems plaguing the cannabis industry, Green Growth said it will sell its CBD business to BRN Group Inc., a cannabis brand-management company, so it can focus on its marijuana operations. No terms were given.
Shares tumbled as much as 42%, the most ever, to 25 cents in Toronto on Tuesday.
Green Growth had previously positioned itself as a CBD retailer, touting its mall kiosks and its partnerships with the likes of Abercrombie & Fitch Co., DSW shoe stores and Authentic Brands Group.
It also made a splashy attempt to enter the Canadian cannabis industry with a C$2.4 billion hostile bid for Aphria in January 2019 after a short-seller attack triggered a plunge that erased more than half of Aphria’s market value. Since then, Aphria has posted three consecutive quarters of Ebitda profitability.
Green Growth remains confident in the future potential of CBD, but “with high potential in the future comes material overhead costs and other obligations in the near term,” CEO Peter Horvath said in a statement. “These near-term overhead costs and other obligations, together with constraints on liquidity, have posed significant challenges that have hindered us from growing the CBD business to its full potential.”
The company is in the midst of an aggressive expansion of its marijuana business in Florida and Massachusetts, but it’s unclear how it will fund that growth, given its weak cash position and high debt, said Eight Capital analyst Jenny Wang. She downgraded the stock to sell from buy, and cut her price target to 25 cents from C$2.
“We believe the price offered likely encompasses minimal premium, if any, for the CBD business, and we believe the net proceeds received from this sale will not be sufficient to satisfy all of the outstanding debt,” Wang wrote in a note.
Green Growth reported a net loss of $34.8 million for the quarter ended Dec. 28. The company declined further comment.
Under the so-called stalking horse agreement with BRN, Green Growth will enter into a 30-day “go shop” period during which it can actively solicit other offers. The company will hold as much as a 20% carried interest in the CBD business after the deal closes.
Holders of $23.7 million of 8% convertible debentures maturing Oct. 18 have agreed to extend the maturity to 2024, lower the interest rate to 5% and reduce the conversion price. Green Growth also intends to raise up to $30 million through a share sale, with its biggest shareholder All Js Greenspace LLC agreeing to buy $10 million.
(Adds analyst comment in paragraphs 7-8)
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