2675970 Ontario Inc. et al. (Tokyo Smoke), CCAA

2675970 Ontario Inc. et al. (“Tokyo Smoke”), a group of cannabis companies which own and operate 61 Tokyo Smoke stores directly and franchise an additional 29 stores across Canada, obtained CCAA protection on August 27.

The companies cite changes in the licensing regime that have devalued cannabis retail licenses and saturated the market, downward price pressures on retail cannabis due to lack of product differentiation between retailers and the grey market, and increased operating costs due to the general inflationary environment as causing their insolvency.

Tokyo Smoke recorded a net loss of $29.3 million for the last fiscal year and is wholly dependent on financing from related parties and third party lenders to meet their working capital needs.

The companies have approximately $91.1 million in secured debt alone, including approximately $38.6 million to BMO.

The purpose of the CCAA proceedings is to implement a restructuring plan (including the immediate closure of 34 underperforming stores and renegotiating leases for remaining locations) and to implement a SISP with TS Investments Corp., the companies’ sole shareholder, acting as stalking horse bidder and also providing a DIP loan.

A&M is the monitor.

Counsel is Reconstruct for Tokyo Smoke, Stikeman Elliott for the monitor, Aird & Berlis for BMO and Osler for TS Investments.