Granting a regulatory stay over licences in a CCAA?

In the Matter of a Plan of Compromise or Arrangement of BZAM Ltd.
What is the test for granting a regulatory stay over licences in a CCAA proceeding?

Overview: In this case, the Court considered a request by a cannabis company for a regulatory stay over its cannabis licences, one of which was set to expire imminently. The Court granted the relief sought, holding that it is appropriate to grant a regulatory stay over licences where, absent such a stay, the applicable regulators are likely to suspend or cancel licences due to the commencement of the CCAA proceeding.

The Applicants obtained relief under the CCAA. One of the Applicants, BZAM, was the ultimate parent company to several entities in the cannabis industry in Canada. It was a reporting issuer listed on the Canadian Securities Exchange, and its shares trade in the United States. BZAM engaged in the production, cultivation, processing and distribution of cannabis and cannabis related products.

All of the non-BZAM Applicants were wholly-owned, directly or indirectly, by BZAM, except for Folium Life and BZAM Cannabis. Five of the Applicants were licenced with Health Canada and operated cannabis facilities in Ontario, Alberta and British Columbia. One of the Applicants’ cannabis licences was set to expire imminently. Absent protection under the CCAA, as well as access to debtor-in-possession financing, the Applicants lacked sufficient cash to meet their obligations as they became due, their liabilities exceeded the value of their assets, and they would be forced to immediately cease operations.

Section 9(1) of the CCAA provides that an application for a stay under the CCAA may be made to the court that has jurisdiction in the province in which the head office or chief place of business of the company in Canada is situated. In determining whether the court has jurisdiction over the proceedings, the Court considers multiple factors, including the location of the company’s assets, employees and sales.

Here, approximately 58% of the employees of the Applicants were situated in Ontario. While the Applicants had two cannabis facilities in each of Ontario and British Columbia, the largest facility of the Company was in Hamilton, Ontario. The Company maintained corporate offices in both Ontario and British Columbia and a majority of the BZAM directors resided in Ontario. In addition, the principal place of business of the senior secured lender, Cortland, was Ontario. The Court concluded that a stay of proceedings was clearly necessary in this case if any form of restructuring process was to be successful. The relief sought in respect of the stay was limited to what was reasonably necessary.

CCAA courts have granted regulatory stays over licences where, absent such a stay, the applicable regulators were likely to suspend or cancel licences due to the commencement of the CCAA proceeding. Other courts have observed that permitting the immediate termination of the licenses of a debtor company would not avoid social and economic losses but rather would amplify them. Canadian courts have also granted stays to prevent the Canada Revenue Agency from seeking to enforce its rights through regulatory actions related to an excise licence for a cannabis company during the period in which it was under protection in an insolvency regime.

In Tantalus Labs Ltd., Re, 2023 BCSC 1450, the British Colombia Supreme Court granted an order as part of the BIA proposal maintaining the status quo of a cannabis excise licence during the course of the proposal proceeding. It did so, rejecting the submission of the CRA, which had submitted that a ministerial decision to not renew a licence could not be the subject of a stay under the BIA. The same principles apply to a CCAA proceeding.

The cannabis licences of the Applicants were among their most valuable assets. Just as importantly, they were required to permit the Applicants to continue operating their underlying business. The expiry or cancellation of licences would suspend or terminate completely the operation and delivery of products by the Applicants with the result that the ability of the Applicants to restructure or continue as a going concern business would, in all probability, be eliminated.

The Court was satisfied that such relief was appropriate, and granted the initial order.

Judge: Justice Osborne

Counsel: Sean Zweig, Mike Shakra, Andrew Froh and Jamie Ernst of Bennett Jones for BZAM; Harvey Chaiton of Chaitons for Stone Pine Capital; Joseph Bellissimo and Natalie Levine of Cassels for Cortland; Philip Yang and Maria Konyukhova of Stikeman Elliott for FTI as monitor