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February 02, 2023

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Flower One Holdings (FONE.C) waves the white flag to seek CCAA protection

Flower One Holdings (FONE.C), the largest cannabis cultivator, producer and full-service brand fulfillment partner in the Nevada, USA, announced today that it and its Canadian subsidiaries are seeking protection from the Supreme Court of British Columbia.

The Canadian-based company is working to appoint PricewaterhouseCoopers as the court-appointed Monitor of Flower One and its Canadian subsidiaries.

Back in March 2020, Flower One Holdings took out a one-year 15% loan from a private lender for $10.0 million USD, then amended that agreement later in July that year to add $1.0 million and extend the term by six more months.

Then in January 2021, the cannabis cultivator restructured its short-term debt to the private lender by converting $5.0 million into shares and as a result, the lender reduced the interesting on the remaining $6.0 million by 5% to 10%.

Flower One went on to raise $5.0 in private placement equity offering in September 2021 to “implement critical improvements to facilities and for general corporate and working capital purposes.”

Apparently that move didn’t produce the desired results as in February 2022, the company announced that it had taken out a $10.1 million term loan from an unspecified shareholder.

The cultivator’s existing debt at the time, totalling $30.0 million and secured against a Flower One facility, was restructured to reduce interest payments. Pay cuts were promised to support the company’s financial rebuilding and cash preservation. The BOD also agreed to a cut in compensation.

In June 2022, Flower One and some of its subsidiaries entered into a term debt modification agreement with RB Loan Portfolio regarding the company’s existing $45.65 million term debt.

The company also entered into a Master Lease Modification Agreement with RB Loan Portfolio regarding the equipment lease financing at the Bruce facility. According to the deal, the lessor agreed to forbear existing events of default and defer some payments through October 31, 2022.

Cannabis hasn’t been doing great on the public markets and is in the middle of a painful reality trough, so it isn’t so surprising that Flower One wasn’t able to follow through on its modified obligations.

So on August 1, 2022, the company announced that it had made further amendments to its term debt agreement by extending the maturity date to December 31, 2022.

Then at the end of August, Flower One put out disappointing financial results, noting $3.64 million in cash and cash equivalents with yearly revenues of $7.9 million with a net comprehensive loss for fiscal 2022 of $5.37 million. The kicker was $114.92 million in assets and $128.80 million in liabilities resulting in a $13.88 million hit to shareholder equity.

Flower One intends to use the CCAA proceedings to facilitate a restructuring or sale of the Canadian company and the injection of additional capital with the goal of taking Flower One private by the end of the 2022 calendar year, relieving them of the administrative burden and capital expenses of being a publicly listed company.

With the cannabis market the way it is, one wonders whether a company who has failed to restructure into profitability for over a year now, will be able to pull a rabbit out of the hat in the next four months. Will a sale help give shareholders at least some equity? This story will be interesting to follow as it unfolds over the next six months.

Currently Flower One trades at $0.005 CAD per share for a market cap of $1.16 million.

Flower One Holdings Stock Chart YTD 10-17-22

 

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