Struggling Canadian cannabis retailer Choom Holdings and its subsidiaries received an order for creditor protection from the Supreme Court of British Columbia.
In a court filing, Choom said its business suffered from the emergency lockdown measures governments across Canada enacted to combat the spread of COVID-19.
Choom also said its sales decreased over the past year as a result of competition in the retail sector as well as “the loss leading priced retailers in Alberta.”
As of Dec. 31, 2021, liabilities totaled 22.4 million Canadian dollars ($17.8 million).
The court filing said more than half the company’s leased retail stores generated costs higher than revenues. Three locations had closed in Alberta in March 2020 as a result of the COVID-19 pandemic and were never reopened.
As of March 1, 2022, Choom had 12 stores in operation in Alberta, two in British Columbia and three in Ontario, with licenses in hand or pending for another six outlets.
Choom reported a net loss of CA$5.8 million for its quarter ended Dec. 31, 2021, on sales of CA$4.2 million.
According to a news release, Choom and its subsidiaries are seeking creditor protection to conduct a sale and investment solicitation process (SISP) and facilitate a transaction allowing them to address their liquidity issues and stabilize operations.
Choom intends to operate its business throughout the Companies’ Creditors Arrangement Act (CCAA) proceedings and while conducting the SISP.
As part of the court order, Choom and its subsidiaries were authorized to enter into an interim financing term sheet with Aurora Cannabis, which agreed to advance $800,000 to fund Choom’s ongoing operations and CCAA proceedings.
Choom has a CA$6 million secured debt owing to Aurora.
On July 8, 2021, Choom completed a debt restructuring in which Aurora agreed to extinguish the principal of CA$20 million and interest accrued worth approximately CA$2.2 million.
In return, Choom issued to Aurora a convertible debenture worth CA$6 million and maturing Dec. 23, 2024.
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Among other things, the debt restructuring agreement entitled Aurora to a “restructuring fee” equal to 1.25% of Choom’s net retail revenue.
The CCAA protection expires May 2, when an extension of the CCAA protection will be sought.
Ernst & Young has been appointed monitor.