Cannabis retail firm Lightbox Enterprises Ltd., which operates under the Dutch Love brand name in B.C. and Ontario and is run by those behind Vancouver’s Donnelly Group, is seeking creditor protection in court after the COVID-19 pandemic ravaged the company’s revenue.
In a petition filed under the Companies’ Creditors Arrangement Act (CCAA) in BC Supreme Court on Nov. 22, Lightbox asked the court to authorize Ernst & Young as a monitor over its affairs as it seeks compromise with its creditors.
According to the petition, the company’s bricks-and-mortar and online cannabis operations were “negatively impacted by the emergency measures governments across Canada have enacted” in response to the coronavirus pandemic.
“[T]hese negative impacts affected all areas of Lightbox’s business, including operations, sales, shifts in demand, supply chains, and obtaining debt and equity financing,” the petition states.
The company’s two main creditors are Sundial Growers Inc. and George Melville Holdings Ltd., cumulatively owed $9 million as Lightbox struggles through a “liquidity crisis.” The companies held out until May 2022 to issue Lightbox default notices. Attempts to sell assets and restructure debts were unsuccessful, while the company’s cash crunch made it unable to cover its liabilities.
Sundial demanded repayment in October 2022, and Lightbox moved to stave off the demand by making a proposal under the Bankruptcy and Insolvency Act shortly after. The company, according to the petition, is working with Ernst & Young and another firm on a planned asset sale process, which it hopes to be approved by the court in early December.
Before descending into a financial crisis, the company helmed by Jeffrey Donnelly was “rapidly expanding,” planning to open stores in Saskatchewan and Manitoba, while B.C. had eight Dutch Love stores, and Ontario had two. The company’s stores were rebranded to Dutch Love from “Hobo Cannabis” in 2020 after a backlash over the Hobo brand’s perceived negative connotations towards homeless people. Lightbox claims in the petition that it employs 96 people and that some employees will be laid off under its CCAA proposal as it closes “underperforming” locations.
The company has more than $12.4 million in liabilities against its nearly $9.5 million in assets, an untenable situation as it saw its sales fall during the COVID-19 pandemic. From January to August 2022, the company generated more than $4.9 million in gross profit against more than $5.6 million in expenses, operating at a loss of more than $1.13 million.
“Lightbox has been actively pursuing a combination, other [merger and acquisition] transaction or sale of the company since 2021,” the petition states. “Despite significant interest from potential purchasers and other parties, due to a variety of issues Lightbox was unable to close any of these proposed transactions.”
In addition to the $9 million owed to Sundial and Melville, the company has a $2 million line of credit with Vancouver business consultant Milan Trpin secured by mortgage on a property owned by a related company, while also facing $5.7 million in unsecured liabilities from its many leases and a “related party debt” to Donnelly Hospitality of more than $2.2 million. The company also owes the Canada Revenue Agency $160,000 for unpaid sales taxes, according to the petition.
“Lightbox is currently in a liquidity crisis, which has made it necessary for Lightbox to pursue refinancing, restructuring efforts, as well as the potential sale of some or all of Lightbox’s assets,” the petition states. “Lightbox is not generating sufficient sales from its provincial retail operations to cover costs. Five locations have closed, two locations never opened and two further locations are underperforming or operating as [sic] a loss. These factors have necessitated a restructuring of Lightbox’s affairs.”