Tokyo Smoke says it will be closing 29 of its stores as it seeks creditor protection.
The cannabis retailer says the closures are part of a restructuring process the brand is seeking out under the Companies’ Creditors Arrangement Act (CCAA) from the Ontario Superior Court of Justice.
The company says other locations across Ontario, Manitoba, Saskatchewan, and Newfoundland and Labrador will remain in operation, at least for the time being.
The company says it has secured financing to continue operating while it restructures its business.
In a press release, Tokyo Smoke says that, following a thorough review of all available options and alternatives, the company has now begun this restructuring to better align its operations with current market and regulatory conditions, which it says have significantly changed since the retail chain launched.
Reconstruct LLP is acting as legal advisor to Tokyo Smoke, and Alvarez & Marsal Canada Inc. is acting as the CCAA Monitor.
Tokyo Smoke’s restructuring plan focusses on closing “underperforming locations”, while also beginning discussions with landlords to obtain consensual lease amendments for its remaining store locations. The company lists 61 corporate stores, 29 franchise stores, and 11 vacant stores for a total of 101 in the monitor report, as well as 474 employees. Five of its corporate stores, comprising 37 employees, are unionized.
Tokyo Smoke says the “significant overhead costs” required to manage its approximately 100 retail locations have resulted in material and recurring losses. For the 12-month period ended June 30, 2024, the retail chain generated revenue of approximately $93.5 million and EBITDA of negative $10.5 million.
The book value of Tokyo Smoke’s liabilities exceeds the book value of its assets by
approximately $89.1 million. As at June 30, 2024, the company held assets with a book value
of approximately $148.2 million and had liabilities with a book value of approximately $237.4
million. Tokyo Smoke had a net loss of $29.3 million for the fiscal year that ended June 30, 2024.
The motion for their initial order was approved on August 27. The comeback hearing will be held on Friday, September 6, 2024, at 8:30 a.m. by Zoom.
