Major marijuana MSO files for U.S. bankruptcy protections

• Major cannabis multistate operator The Cannabist Co. filed for bankruptcy in Delaware on March 25.
• The MSO has sold off its permits in Virginia, Ohio and Delaware to satisfy creditors, and is in negotiations to sell off other permits.
• But even after the initial sales, the company still owes roughly $270 million to lenders as well as the Internal Revenue Service.
• The situation is a potential test case for cannabis companies wanting to restructure, but it’s also a signal that lenders’ patience with debt-ridden firms is ending.
• The Cannabist surrendered its medical cannabis permit in New York State and is “winding down” operations in Pennsylvania.

In what could be a significant test case for the uneasy relationship between the U.S. federal government and the still-illegal cannabis industry, a major marijuana multistate operator has filed for bankruptcy.

The Cannabist Company’s March 25 filings in U.S. Bankruptcy Court in Delaware are what’s believed to be the first attempt by a struggling marijuana firm to use the bankruptcy process rather than receivership to satisfy creditors.

It’s also another sign of creditors’ unwillingness to continue keeping struggling operators afloat with more and more debt.

Major marijuana MSO goes bankrupt

The filings in U.S. Bankruptcy Court immediately followed bankruptcy protection filings in Canada, where The Cannabist is incorporated.

After defaulting on a major loan early in the year, the company is in the process of selling off assets to satisfy creditors, according to filings.

Permits in Virginia, Ohio and Delaware have all been sold, for a combination of $63.5 in cash and a promissory note, according to the company.

And the MSO is in the process of selling licenses in six other states to satisfy creditors, it said in a March 24 statement.

But even after selling its vertically integrated permit in Virginia to the affiliate of a Boston-based hedge fund, Cannabist owes a combined $270 million to lenders and the Internal Revenue Service, according to filings.

In a statement, company officials said “a range of options” was considered to keep the company going, “including potential asset sales, mergers, or other strategic and financial transactions.”

However, “in light of persistent operational and financial challenges facing both the Company and the broader industry,” the statement continued, “it became clear” that bankruptcy.

It also projects negative cash flow over the next few months.

Medical cannabis permits abandoned, wound down

Other assets have been abandoned.

The company has already surrendered its vertically licensed permit in New York State, according to filings.

Reached Friday, a spokesperson for the state Office of Cannabis Management could not immediately verify the situation, but The Cannabist is no longer listed as a “registered organization” on a state website.

It’s also in the process of “winding down” operations in medical-only Pennsylvania by April, according to a filing with a Canadian bankruptcy monitor.

According to the monitor, “substantially all of (Cannabist’s) regulated cannabis products in Pennsylvania have been sold or otherwise disposed of.”

That’s because with “sustained negative cash flows” in Pennsylvania and New York, those permits “received insufficient interest” from potential buyers.

“No actionable transactions for these markets were received,” the monitor added in filings.

Can other U.S. cannabis companies file for bankruptcy?

Owing to its unique position, it’s not certain how helpful Cannabist’s odyssey through U.S. bankruptcy courts might be to other cannabis firms.

Like other early-stage big cannabis companies, Cannabist is incorporated in Canada, where cannabis is legal.

But as it said in filings, all of its assets are in the United States.

That’s why Cannabist used a filing citing Chapter 15, reserved for foreign entities, following filings in Canada.

“I think they’re just trying to do an orderly wind down,” Charles Alovisetti, an attorney, with Vicente LLP, told the Baltimore Business Journal.

“Many of these big cannabis companies took on significant amounts of debt and a lot of them have run into issues servicing the debt.”

Cannabist bankruptcy means rare Maryland permit available

According to the Journal, Cannabist’s liquidation of its Maryland assets presents a unique puzzle.

Maryland, where adult-use cannabis sales was limited at market launch existing medical-cannabis operators, is a limited-license state.

And there’s a five-year moratorium on selling permits while social-equity licenses

If state cannabis regulators sign off on allowing Cannabist’s permits to be sold, that presents a unique opportunity to enter the market, the Journal reported.

Chris Roberts can be reached at chris.roberts@mjbizdaily.com.