Zenabis Global, a subsidiary of Quebec-based licensed cannabis producer Hexo Corp., filed for creditor protection under Canada’s Companies’ Creditors Arrangement Act (CCAA) to restructure the business.
Hexo bought Zenabis only one year ago for 235 million Canadian dollars ($185 million) in stock – one of several recent acquisitions that ultimately pushed the Quebec business to the brink of bankruptcy.
As reasons for the CCAA filing, Zenabis cited:
- Margin pressures caused by the fragmentation of the overall cannabis industry.
- General operational and financial underperformance.
- Financial pressures resulting from debt.
The company said the initial court order is expected to provide a stay of creditor claims to give Zenabis time to explore a sale of assets.
“Zenabis Group has been unable to generate positive cash flows and it has consistently incurred cumulative losses,” according to a news release.
The company said it is no longer able to meet “significant” obligations owing to its secured and unsecured creditors.
“After careful consideration of all available alternatives, the board of directors of each of the members of the Zenabis Group determined that it was in the best interest of the Zenabis Group and all stakeholders to file for an application for creditor protection under the CCAA,” the release noted.
Ernst & Young was appointed monitor to oversee the CCAA proceedings.
Hexo said the creditor protection petition is limited to Zenabis, and neither the Quebec company nor any of its other subsidiaries is party to the proceedings.
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With Hexo teetering on the edge of bankruptcy in recent months, the Quebec company has been closing facilities it recently acquired, including from Zenabis.
For instance, Hexo said last year it was closing a facility in Stellarton, Nova Scotia, that came in the Zenabis deal.
Zenabis had 564 employees when Hexo bought it one year ago, per financial filings.
Zenabis received more than CA$7 million in coronavirus-related funding from Canada’s federal government before it was acquired by Hexo.
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