BZAM granted CCAA protection due to ongoing financial challenges

| Sarah Clark

BZAM announced today that it has been granted Companies’ Creditors Arrangement Act  (CCAA) protection to restructure its business and financial affairs. 

The Vancouver-based cannabis producer says it has been unable to generate positive cash flows and has incurred cumulative losses, which it blames on margin pressures caused by competition and “fragmentation” of the cannabis industry,

The orders were granted by the Ontario Superior Court of Justice and also applied to BZAM’s foreign subsidiaries.

Bennett Jones LLP is acting as counsel for the BZAM Group in its CCAA proceedings.

The company has been facing financial pressure that has led to the closure of several facilities and included laying off about 90 people last September

At the time, the company said it was focusing the scope of activities at its Pitt Meadows, BC facility and concentrating other activities at its Ancaster, ON facility (formerly TGOD) as part of its final phase of consolidation. 

The merger with TGOD was touted as a way to emphasize TGOD’s market strength in Quebec and Ontario with BZAM’s strong presence in western Canada. 

BZAM had also sold its facilities in Midway, BC and Maple Ridge, BC (formerly Agrima) and referenced a focus in 2023 on “streamlining” operations. A 2023 report also referred to the recent divestment in their Puslinch, ON facility and Edmonton, AB facility. 

Also in December, BZAM announced it has entered into a definitive share exchange agreement to acquire Final Bell Canada Inc. from Final Bell Holdings International Ltd, a hardware, packaging, and brand development company serving the cannabis industry. 

The deal was said to make BZAM the fifth-largest Canadian LP.

Among other ventures, Final Bell has developed nicotine and cannabis vape hardware, co-founded Dosist, a cannabis vape company, in 2016, and operates a cannabis production facility in Ontario under WeedMD’s Starseed brand. Final Bell recently fully acquired Dosist

The company also lists cannabis brands operating in Canada like Tweed, Spinach, Sherbinskis, Foray, Ace Valley, B40, Beurre Blanc, Kolab, Cookies, and others among its clients, as well as the newly-launched Jeeter Canada.

Final Bell reacted to BZAM’s announcement by saying it believes that BZAM’s initiation of CCAA Proceedings constitutes an “improper use of creditor protection legislation to evade its creditors, defraud shareholders, and facilitate a related party going private transaction at an unjustified discounted value in order to circumvent a customary going private transaction requiring shareholder and creditor approval.”

Final Bell says it intends to use all legal recourse available to it to oppose the CCAA Proceedings and hold BZAM and its management accountable for their actions.

BZAM secured $1.79 million in borrowing from Stone Pine Capital Ltd., a company controlled by the BZAM’s largest shareholder and current chairman. The promissory notes bear interest at prime plus 8.0%, mature no earlier than January 31, 2025, and are subordinate to the company’s senior credit facility.

Its most recent quarterly report showed a  $101 million loss in operations for the nine months ending  September 30, 2023, saying it had insufficient cash on hand to fund its planned operations. 

The Initial Order provides for a stay of proceedings in favour of the BZAM Group and the non-applicant stay parties, the approval of debtor-in-possession financing (“DIP Financing”) and the appointment of FTI Consulting Canada Inc. as monitor of the BZAM Group (in such capacity, the “Monitor”).  In addition, the initial order provides BZAM with relief from certain reporting obligations under securities legislation and stock exchange rules.

The company says the stay of proceedings and DIP financing will give it time to consider potential restructuring transactions in a way that most benefits the value of its assets for the benefit of its creditors and other stakeholders. This may include the sale of all or substantially all of the business or assets of the BZAM Group through a court-supervised sales process.

The BZAM Group, the collection of BZAM’s Canadian companies, intends to seek court approval to launch a sale and investment solicitation process for its business and assets (the SISP) on or around March 8, 2024. The SISP is expected to be administered by the BZAM Group and the Monitor. 

In connection with the SISP, BZAM expects to enter into a transaction with an entity related to an existing creditor and significant stakeholder of the company to acquire substantially all of the businesses and assets of the BZAM Group (a Stalking Horse Transaction). The Stalking Horse Transaction is expected to act as the stalking horse bid in the SISP. Additional details, in respect of the SISP and the proposed Stalking Horse Transaction, will be disclosed shortly.

In addition, BZAM also announced that Kay Jessel resigned from the board of BZAM prior to the board resolving to commence proceedings under the CCAA.

BZAM’s business operations will continue during the CCAA proceedings, and the company claims it expects to “emerge from creditor protection as a stronger company with a healthier balance sheet.”

A factum filed February 28 in Superior Court of Ontario says BZAM Management’s cannabis licence was set to expire on February 29, 2024. It says BZAM Management has requested an extension to April 15, 2024, from the CRA but have received no response.

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