Cannabis producer Muskoka Grown asked for temporary relief from creditors earlier this month so it can continue to conduct business and develop a plan to restructure its affairs.
The Bracebridge, Ontario, company, down to 1,200 Canadian dollars ($850) of cash on hand, cited the COVID-19 pandemic, a substandard first crop of cannabis and a lack of brick-and-mortar stores in Ontario for its liquidity issues.
That move gives Muskoka Grown extra time to develop a proposal to present to creditors.
To address the immediate cash crunch, principal secured creditor Arthur Zwingenberger agreed to provide additional financing to Muskoka Grown through a debtor-in-possession (DIP) loan facility.
The proceeds of the loan will be used to finance operating expenses and restructuring, according to the records.
“Without the DIP loan, Muskoka Grown faces an immediate cessation of its going-concern operations and the potential loss of the cannabis License,” according to a document.
As of May 4, the company’s creditor list included:
- Secured creditors with claims totaling approximately CA$8.36 million.
- Preferred creditors with claims totaling CA$125,000.
- Unsecured creditors with claims totaling roughly CA$7 million.
Muskoka Grown’s plan under Notice of Intention proceedings involve:
- Harvesting, processing, testing and selling its new crop of “consistent quality and high potency” cannabis flower.
- Selling its “salad” inventory at best available rates. (Salad inventory is dried cannabis with inconsistent test results for quality and potency.)
- Identifying and correcting expensive operational inefficiencies.
- Exploring the possibility of selling the vacant lands to help finance its current operational cash-flow shortfall.
- Weighing options for a sale of the business if actual cash flow does not meet expectations.
For the fiscal year ended Sept. 30, 2019, Muskoka Grown reported revenues of about CA$2.8 million and a loss of more than CA$4.2 million.
The company requested an extension to the initial 30-day stay period so it can sell its salad inventory, prepare its new crop for sale and identify restructuring options.
Muskoka Grown employs about 47 full-time people.
The First Report of the Proposal Trustee can be viewed here. The Factum can be viewed here.