GenCanna Global USA Inc.

January 24, 2020

Cannabis companies may not have access to federal bankruptcy courts but vertically-integrated agtech companies that develop federally-legal hemp-derived cannabinoid products like CBD sure do. 👍

Now, we know what you’re thinking: CBD is all the rage, everyone is talking about it, everyone — even Nana — is using it, and everyone is infusing it in their products, so how the hell could an “industry pioneer” in the space end up in bankruptcy court?!? Sh*t. We have a whole bin of it in the corner of our WeWork office, just under where the beer used to be. In fact, we collectively drank some and rubbed some all over our bodies in a team building exercise just prior to righting and editting this peace so that’s a very fair question.

The companies troubles include:

• An inability to find a strategic partner or find a banker — in the age of WeWork — that would carry the company through a capital-raising IPO.

• Consummate a transaction with a public-traded strategic with a hyper-inflated stock price of its own (callback to the epic rise of weed stock values) prior to reality set in.

• A fire at a production facility. How ironic.

• A contract dispute with a contractor working on a new hemp processing facility. How trite.

• An inability to find proper “financial leadership.” Apparently, the lenders were unimpressed with the company’s chosen CFO and then required the retention of Huron Consulting Group which then led to the sh*tcanning of the CFO which then led to that CFO claiming that there was fraud on the books which then led to an investigation which then concluded that it was all just “psyche, I’m just a sore loser” and….damn this CBD feels good. How could there be drama like this when everyone has this sh*t tingling all over their body?

• Fights with farmers who didn’t get their fixed payments after the company’s sales did not materialize as projected. Ah, projections.

• A price collapse. Per the company, “Beginning in the summer of 2019, pricing in the industry plummeted across all CBD product categories. By the end of the year and through today, bulk product prices in nearly all categories have dropped by as much as 80%. This dramatic plunge in pricing also correlated to the large drop in the public capital markets for cannabis companies in both the US and Canada.” Apparently the fact that this sh*t is easy to produce and popped everywhere in basically 1.2 seconds is not good for pricing. Who knew?

• A lack of regulatory clarity about the status of hemp-derived products has delayed investment and development of products. Or so they say. Seems like everyone under the sun has some CBD-infused product at this point, but whatever. We’ll take this at face value.

Of course, the biggest trouble was probably the involuntary chapter 11 petition filed against the company by three creditors. But, in the spirit of making lemonade, the company will take advantage of the opportunity to convert the company to a voluntary 11 and use the benefit of the automatic stay obtain some much-needed liquidity in the form of a $10mm DIP credit facility and figure out a path forward.

• Jurisdiction: E.D. of Kentucky (Judge Schaaf)

• Capital Structure: $68.5mm Term Loans (MGG Investment Group LP)

• Professionals:

  • Legal: Benesch Friedlander Coplan & Aronoff LLP (Michael Barrie, Jennifer Hoover, Elliot Smith) & Dentons Bingham Greenebaum LLP (James Irving, April Wimberg, Christopher Madden)

  • Financial Advisor: Huron Consulting Group (James Alt, Marc Passalacqua, Benjamin Smith)

  • Investment Banker: Jefferies Group LLC

  • Claims Agent: Epiq Bankruptcy Solutions LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Prepetition Lender: MGG Investment Group LP

    • Legal: Schulte Roth & Zabel (Kristine Manoukian, Adam Harris) & Fowler Bell PLLC (Taft McKinstry, Christopher Colson)