Local cannabis firm seeks creditor protection amid ‘critical cash shortage’

Local cannabis firm seeks creditor protection amid critical cash shortage

A Southwestern Ontario pot producer that bills itself as Canada’s first female-focused cannabis company filed for creditor protection as it faces a “critical cash shortage.”

An Ontario court has approved a request by Eve and Co., a licensed cannabis grower that operates a massive greenhouse in Strathroy, to sell assets and seek investment after it was granted protection under the Companies’ Creditors Arrangement Act (CCAA).

“The creditor protection is kind of a temporary holding status,” said Michael Armstrong, a professor at Brock University’s Goodman school of business who studies the cannabis industry.

“All of the current debts are kind of frozen. Now, any new loans under creditor protection, they are protected under the court. It allows the company to bring in more money, enough to keep it running.”

Eve and Co., a publicly traded company listed on the TSX venture exchange, didn’t respond to a request for comment Monday.

The company and its subsidiary, Natural Medco, was founded by Melinda Rombouts, who became the first woman to helm a cannabis producer after converting her Strathroy flower-growing greenhouse into a medical marijuana grow-op.

After Canada became the second country to legalize recreational pot in 2018, cannabis companies across the country bred to build out their operations to meet the expected demand.

Eve and Co. secured a $18.7 million loan from Royal Bank of Canada in 2019 to expand its Naperton Drive greenhouse to 93,000 square meters, making it one of Canada’s 10 largest marijuana-growing operations at the time.

It also marked one the first times one of the so-called Big Five banks was lending to a cannabis company. At the time, Canadian banks had been hesitant to do business with cannabis firms because of their meagre cash flows, limited assets and fear of running afoul of authorities in the US, where the drug remains illegal at the federal level.

“It’s a huge recognition,” Rombouts said at the time of the RBC loan.

Eve and Co. also stood out in the male-dominated cannabis industry because two-thirds of the company’s more than 60 employees were women, including three-quarters of its management team.

  1. Eve & Co. CEO Melinda Rombouts (front) with three quarters of her management team (all female) inside a greenhouse at the licensed producer of cannabis in Strathroy.  L to R Marilyn Furtah, Becky Smith, Amanda Jasevicius, Lindsay Bass, Teresa Jamieson, Karen O'Hagan, Jordynn Bellback, Kelsey Jobson, Patti Moniz, Cathy Peters, and Christine Bell.  Derek Ruttan/The London Free Press

    Major cannabis grower, based in Strathroy, boosts women’s role in industry

  2. An Eve & Co. employee Amanda Jasevicius holds a tray of cannabis clones.  The Strathroy-based licensed producer is the first in Canada to sell grow-it-yourself pot plants for the recreational market.  (Eve & Co. supplied photo)

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  3. Pete Young, the mastergrower at London-based cannabis producer Indiva, has been touring Canadian cities in October to promote his new book, The High Road.  The 199-page book traces Young's journey from growing marijuana on the rooftop of a Long Island, NY, apartment building to being recruited to cultivate commercial cannabis for a publicly traded company.  (DALE CARRUTHERS, The London Free Press)

    Legalized marijuana: Meet the (pot) producers in Southwestern Ontario

  4. Eve and Co. chief executive Melinda Rombouts inside the company's greenhouse in Strathroy.  (Derek Ruttan/The London Free Press)

    Eve and Co. expansion funded by RBC’s foray into pot industry

  5. Ashely McDowell, community engagement co-ordinator at Central Cannabis in London, arranges marijuana-smoking accessories at the Wonderland Road store on Thursday.  Customers at Ontario's cannabis retail stores will soon be able to pre-order products online and by phone for pickup, the province announced this week.  (DALE CARRUTHERS, The London Free Press)

    London pot shop aims to launch first pick-up service

  6. An Eve & Co. employee holds a tray of cannabis clones.  The Strathroy-based licensed producer is the first in Canada to sell grow-it-yourself pot plants for the recreational market.  (Eve & Co. supplied photo)

    Let Ontario pot producers open retail operations to ease store shortage, says business prof

But after the initial buzz of legalization wore off, cannabis companies across the country have shuttered operations, scaled back expansion plans, laid off staff and even declared bankruptcy.

A report by BDO Canada, a licensed insolvency trustee, details how Eve and Co. came to face a “critical cash shortage” as a result of lower than expected demand for its products, an oversupply of cannabis and downward price pressure in the domestic market .

A $2.9 million deal to ship medical marijuana to Germany fell apart and a deal to lease out a portion of the Strathroy greenhouse unraveled after the tenant stopped paying the $125,000 monthly lease, the report said.

“The proposed CCAA proceedings will allow (Eve and Co.) to maintain its business operations, preserve supplier relationships, preserve jobs for its employees, provide stability for the benefit of all the applicants’ stakeholders and allow the time to conduct a court-supervised sales and investment solicitation process,” the 15-page report said.

With an oversupply of cannabis in the Canadian market, Armstrong said things such as brand recognition, intellectual property and an established base of medical marijuana customers make companies attractive for acquisition.

“So, would any other cannabis company want to take it over? Maybe, but there would probably have to be something special about this company to make it worth their interest because there’s not very many producers that want more greenhouse space at this point,” he said of Eve and Co.

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