Green Growth said it will sell its CBD business to BRN Group Inc., a cannabis brand-management company, so it can focus on its marijuana operations. Shares declined after the announcement by 42%, to 25 cents, in Toronto on Tuesday.
Green Growth reported a net loss of $34.8 million for the quarter ended Dec. 28. In agreement with BRN, Green Growth will enter into a 30-day period during which it can actively solicit other offers. The company will hold as much as a 20% carried interest in the CBD business after the deal closes.
Holders of $23.7 million of 8% convertible debentures maturing Oct. 18 have agreed to extend the maturity to 2024, lower the interest rate to 5% and reduce the conversion price. Green Growth also intends to raise up to $30 million through a share sale, with its biggest shareholder, All Js Greenspace, LLC, agreeing to buy $10 million worth.
Green Growth, a CBD retailer, has mall kiosks and partnerships with major retailers Abercrombie & Fitch Co, DSW shoe stores and Authentic Brands Group.
In early 2019 Green Growth made a C$2.4 billion hostile bid for Aphria, after a short-seller attack triggered a plunge that erased more than half of Aphria’s market value. Since then Aphria has posted three consecutive quarters of Ebitda profitability.
Green Growth remains confident in the future potential of CBD, but “with high potential in the future comes material overhead costs and other obligations in the near term,” CEO Peter Horvath said in a statement. “These near-term overhead costs and other obligations, together with constraints on liquidity, have posed significant challenges that have hindered us from growing the CBD business to its full potential.”
The company is in the midst of an aggressive expansion of its marijuana business in Florida and Massachusetts, but it’s unclear how it will fund that growth, given its weak cash position and high debt, according to Eight Capital analyst, Jenny Wang. She downgraded the stock to sell from buy, and cut her price target to 25 cents from C$2.
“We believe the price offered likely encompasses minimal premium, if any, for the CBD business, and we believe the net proceeds received from this sale will not be sufficient to satisfy all of the outstanding debt,” Wang wrote in a note. This frank pronouncement is not a destabilizing attitude towards Green Growth but an adjustment of financial position, leaving shareholders wondering if there is a recovery from what could be a period of instability or the warning signs of a dying superstar.