CannaVer, established in 2019, was awarded 3 manufacturing licenses at the onset of Missouri’s medical marijuana program. The company quickly gained recognition in the state, launching Osage Kitchen, a brand built in a state-of-the-art infused kitchen that would create award-winning edibles. CannaVer quickly followed the success of Osage Kitchen by launching Crossroads, one of the state’s most successful vape brands early on. But as the company rolled out its third brand, Blue Note, internal struggles between investors and operations created a tumultuous environment that stagnated the company and brought one of the state’s biggest brands to a grinding halt.
Osage Kitchen’s award-winning infused Brownies
Last year, the St. Louis County Circuit Court placed CannaVer in receivership. Disputes regarding the operation of the facility and the inability to raise additional capital to sustain the burgeoning business led to the suit filed by 231 Partners LLC, a Delaware firm, in the suit listed as CannaVer’s largest cash-basis equity investor.
Companies being placed in receivership is not uncommon in cannabis, especially in more established markets. Because cannabis is still illegal at the federal level, failing cannabis companies have limited options as federal bankruptcy mechanisms are unavailable.
For cannabis operators who find themselves in such a position, the most viable option often available is a state-level receivership.
In a receivership, a trustee or receiver is appointed by the court to preserve or manage the disposition of the company’s assets for the benefit of the stakeholders involved.
In cases like CannaVer’s, a receivership can benefit both the creditors and members of the company. Having a responsible third party whose obligations are to the court can help navigate complex financial, logistical, or managerial issues. A receiver can, among other things, address internal conflicts, oversee – or hire managers to oversee – operations to ensure assets are protected, and review financial information to determine the value of all assets and debts, as well as identify sources of revenue and losses.
“Essentially what happens is the judge is appointed in charge of the entity and the judge obviously doesn’t have the time or necessarily the business experience to actually operate an entity,” explains Eric Moraczewski, CEO of NMBL Strategies, and the court-appointed receiver overseeing the sale of CannaVer.
“So the judge appoints a receiver, as basically their right arm, to do that for them. The receiver steps in and says, ‘Okay, does this entity have the possibility to be a going concern? Can it continue to operate as a business? And if it can’t, what’s basically its highest form of value to go back to the creditors and the people that are owed money or have invested in the business?”
The case of CannaVer is the first receivership established for a cannabis company in Missouri.
One of the original three licenses held by the company has already been sold and is currently awaiting ownership transfer. For Moraczewski, the goal is to distribute the remaining licenses and assets of the company in a way that is most beneficial for the creditors and company.
A previous offer of $2.4 million was rejected previously.
Now, the CannaVer licenses and assets move to a sealed bid auction.
Interested parties will be able to bid on the licenses, the facility, and the IP of one of Missouri’s earliest brands.
At its high point, Cannaver brands had 87% market saturation in Missouri’s medical marijuana market.
Bids will be accepted for 30 days before Moraczewski presents his decision to the court.
“We plan to open up the auction here shortly. And so it’ll be a sealed bid auction, basically, meaning that people will write down their bids by a certain date, and then we’ll figure out what returns the most money to the creditors. But we’ve written it out so that people can choose whether they want to bid on all or part of the pieces that exist.”
“Because we have some people saying I have a license but I don’t have a facility. We have some people saying I have a facility but I don’t have a license. Or I feel like I can build my own facility but I still need the license. And then you have other groups that are saying I just want it all in. The people that have toured through the facility at this point the first group that I walked through with said oh man, this is the Cadillac of manufacturing facilities. And then the second group I toured them through and I said oh I heard this was the Cadillac of cannabis manufacturing facilities. And the guy says, no this isn’t the Cadillac, this is the Maserati.”
The information about the CannaVer facility backs up the statements heard by Moraczewski.
The CannaVer facility located in Hazelwood, MO.
CannaVer currently owns 40% of the 1.06-acre property and 11,000-square-foot facility. The other two owners have now consented to the sale of the property to be included in the auction. In addition to the property, the CannaVer facility is essentially a turnkey operation, outfitted with more than $1 million dollars in manufacturing equipment. The sale also includes the brand IP for Crossroads, Blue Note, and Osage Kitchen.
Bids must be for cash, or as a qualified credit bid, as the company will not finance the sale. Additionally, Moraczewski stated that qualified bidders must present evidence that they’re “willing, authorized, capable, and qualified, financially, legally, and otherwise, of unconditionally performing all obligations” of the bid, meaning the most likely scenario will be a bidder holding or having held a license to operate a marijuana facility in Missouri or another state. “We’ve had some groups that might be completely new to cannabis and find it just an interesting piece, and that’s going to be a harder sale to DHSS is my understanding – that someone really doesn’t know what they’re doing. So that’s kind of where we’ve tried to say some form of qualification to show that you’re more likely to get approved in the state than not.”
Those criteria for bidders ensure that there are fewer delays in the process and that the end result isn’t a denied application for transfer of ownership, Moraczewski explained.
Interested parties can find more information by going to www.nmblstrategies.com/cannaver/
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