American cannabis operator Green Growth Brands Inc. (CSE: GGB) saw its shares drop 32 per cent Tuesday, a day after it announced a plan to sell its CBD business.
Late Monday, Green Growth said The BRN Group Inc. — a privately-held cannabis brand distribution company — has agreed to acquire a majority stake for its various CBD brands and retail network for an undisclosed amount.
BRN Group’s new CEO, Dia Simms, previously ran rapper Sean “Diddy” Combs’ portfolio of businesses.
Ohio-based Green Growth sells various CBD-infused beauty products, oral drops and gummies under its Seventh Sense and Green Lily brands. The products are sold in 195 mall kiosks and at hundreds of American Eagle, DSW shoe stores, and Abercrombie & Fitch locations across the U.S.
The company said it expects to hold up to a 20 per cent interest in the CBD business following completion of the sale transaction. However, it also said the sale will include a ‘stalking horse agreement’ which allows it to shop around for a better offer over the next 30 days.
Rapid expansion amid frigid capital markets
Green Growth’s strategy includes a multi-state cannabis business with pot stores in Nevada, Massachusetts and Florida. The company once planned on becoming a North American pot giant through aggressive store expansion and acquisitions.
But Green Growth said the the decision comes as it faces “serious financial difficulty” with limited alternatives. CEO Peter Horvath said the sale of its CBD business is a result of liquidity challenges and soaring costs that have prevented the company from growing that portion of its business to its full potential.
“With high-potential in the future comes material overhead costs and other obligations in the near term,” Horvath said in a release. “In light of these factors, we have determined it necessary and appropriate to sell the CBD business and focus on executing our MSO business plan.”
The sale announcement comes almost a year after Green Growth’s hostile takeover bid of Aphria Inc. (TSX: APHA), which expired in April, and two months after the company cancelled its US$310 acquisition deal for cannabis extract company MXY Holdings LLC.
Green Growth also reported its second quarter financial results late Monday. The company said it took a US$34.8 million loss for the quarter ended Dec. 28, 2019. Total revenue for the three months was US$21.1 million, with CBD sales coming in at US$11 million.
Shares have dropped 95 per cent since Jan. 11, 2019 on the Canadian Securities Exchange.
The company said it started a “corporate reorganization” on Feb. 21 in an effort to save around US$4 million annually in payroll and operation costs.
More details will come at the company’s investor call that it abruptly rescheduled to Feb. 26 at 5:00 p.m. EST.
Top Photo courtesy of Green Growth Brands