One of Oregon's biggest cannabis companies seeks protection under Canadian and Oregon laws to keep creditors away as it restructures, considers strategic options and a possible sale.
Chalice Brands, based in Toronto, trades at the Canadian Securities Exchange. Since May 2022, trading of the shares has been suspended because the company had not filed its financial statements for fiscal year 2021.
Chalice's primary business activity is located in Oregon where it employs 293 people and has 16 retail locations, according to Business Journal.
Chalice CEO Jeff Yap said in the filings that "the number one objective is the retention of employment of our employees." "We're proud of the team that we've built, but we can’t meet our commitments."
The company applied to the Oregon Circuit Court in order to appoint a receiver. Kenneth Eiler has been appointed as receiver.
Chalice obtained a Canada order under the Companies' Creditors Arrangement Act. This act gives companies that are in financial difficulty time to restructure. Creditors cannot enforce their claims against Chalice and its subsidiaries until 10 days after the order. The court may extend this time frame if it so chooses.
KSV Restructuring Inc. acts as Chalice's monitor through the CCAA proceeding, the company stated in a filing with the regulatory authorities.
The company's Canadian regulatory filings outlined this move:
The Board of Directors of Chalice determined, after reviewing a variety of options, that initiating the CCAA proceedings and State Receivership procedures is in the Company's and its stakeholder's best interest. If granted, the stays in the Initial Order or the Receivership Order will give Chalice additional time to examine potential restructuring transactions. This includes a sale and an investment solicitation process that allows it to explore strategic options and other alternatives. Chalice intends on continuing its work with Monitor, Receiver, and their advisors as it considers potential restructuring transactions.
The company stated that it's "future is uncertain." The company also expects that trading in its shares will be halted for an indefinite period of time.
Chalice's appeal for a receiver cites Oregon's cannabis market as being troubled, plagued by low prices and an oversupply, along with tax issues and a lack of federal deregulation.
Oregon cannabis prices were at record-lows in April. State regulators stated that in an earlier study of cannabis demand and supply, the Oregon recreational marijuana market was in the worst economic position since the program's inception in 2016.
Yapp described conditions last summer as 'brutal'
Chalice, according to the receiver's filing, has debts of more than 35 million dollars, which are held by subsidiaries. Chalice stated that landlords had threatened to lock Chalice from locations due to unpaid rent.
Yapp said that the company can continue to operate with no debt burdens by undergoing receivership and CCAA.
The receiver must ensure that the company's outstanding debt is resolved, and the balance sheet is cleaned up to make it more appealing to a potential buyer.
Yapp stated that the company is seeking opportunities, and that finding a buyer would be a better result than closing down and selling assets.
He said, "We believe the company is more valuable as a running business than as an asset for sale."
Yapp stated that Chalice was seeing record results in the early stages of the Covid-19 pandemic, and decided to expand through acquisitions. In 2021 it acquired Cannabliss, Homegrown Oregon and took on debt. Yapp stated that sales started to fall as soon as the gas prices increased.
He said that although the company had tried to reduce its costs, it could not keep up with the challenges.
He said that the company had never been adequately capitalized. "It is to the point that we cannot pay our debt with current operations or levels of business."
Willamette Week published an article earlier this year that reported on the arrest of several small cannabis farmers and others.