Greenrose Holding Co. started 2022 with new footing in Arizona’s and Connecticut’s legal cannabis markets, but a lack of cash flow has now left the cultivation company on shaky ground as shareholders attempt to fight off a foreclosure from its lead creditor in Delaware’s Court of Chancery.
Silver Point is attempting to recoup its $105 million loan to Greenrose in exchange for Theraplant and True Harvest, the two cannabis companies Greenrose bought with the loan, but shareholders claim the deal was made without their consent.
“This action arises out of a ‘consensual’ foreclosure scheme by which Greenrose’s board of directors colluded with its creditors in order to enter into a Transaction Support Agreement and Strict Foreclosure Agreement whereby all (or substantially all) of Greenrose’s assets would be transferred to the Company’s creditors without a stockholder vote,” said the 24-page complaint. “The scheme violates both Delaware statutory law and the Company’s own charter provisions.”
Greenrose bought Theraplant in late 2021 and followed up that deal by purchasing Arizona-based True Harvest in January 2022. Those deals were partially financed by a $105 million loan from Silver Point.
In the March 25 8-K filing, Greenrose reported that it had agreed to give up Theraplant and True Harvest to its creditor, Silver Point. The shareholders claim that such a transaction requires shareholder approval.
Silver Point did not respond to an emailed request for comment, but the company noted in its July 3 8-K report that it plans to fight the lawsuit.
“The Company believes the Complaint is meritless and intends to defend itself vigorously,” said the report.
Greenrose expected Connecticut’s adult-use market to open in late 2022 and that the company would be a major supplier of cannabis for the market. The opening date would eventually come on January 10, 2023. The delay in opening proved to be a fatal one for the company, according to the lawsuit.
“At the time of the Silver Point loan and the acquisitions, Greenrose projected that it would have sufficient cash flow to service the loan and Greenrose’s pre-existing debt until the opening of the Connecticut recreational cannabis market, which Greenrose projected would be a major, value-enhancing event for the Company. While the opening of the Connecticut recreational cannabis market was expected to occur in late 2022, it did not open until January 10, 2023. Theraplant is expected to be the main supplier of cannabis to the Connecticut recreational market.”
Greenrose’s financial troubles have long been on the horizon. Back in August, Greenrose disclosed in its second quarter report to the SEC that the company lost $24 million in the first half of 2022. At that time, the report noted that the company planned to focus on “ramping cultivation capacity” in both Connecticut and Arizona.
Greenrose Holdings announced in September 2022 that its board of directors had removed Chief Executive Officer William F. Harley III and replaced him with interim-CEO Tim Bossidy. Bossidy is expected to remain at the helm of the company until a new owner can be found.
The lawsuit claims that Harley was the sole holdout on Greenrose’s executive team that was delaying the foreclosure deal.
The lawsuit alleges that Greenrose turned down $7.5 million in new capital last summer that could have staved off the foreclosure. It also claims that the company had already agreed to a foreclosure deal with Silver Point.
“Without serious discussion or review, the Board Defendants rejected these term sheets,” said the complaint. “Unbeknownst to Plaintiffs, the Board Defendants had already secretly agreed to the consensual foreclosure scheme with Silver Point whereby Greenrose would transfer its operating assets — Theraplant and True Harvest — to Silver Point, without a stockholder vote or formal foreclosure proceeding.”
Stockholders, representing ownership of 59%, attempted to replace the board of directors on Jan. 24 without scheduling an official meeting, issuing a prior notice or holding an official vote. The move came two days before an Arizona judge rejected the majority shareholders’ court bid to appoint an interim receiver for the company.
Greenrose and its debt holders are still awaiting trial in Maricopa County, Ariz., for a debt collection lawsuit. Judge Scott McCoy denied a request for an interim receivership from Greenrose’s debt holders during a Jan. 26, 2023, emergency pre-trial hearing. The judge issued a stay order on May 1, which remains the case’s current status.
