Dustin Walsh
This story was republished with permission from Crain’s Detroit and written by Dustin Walsh.
Embattled cannabis operator Skymint has been acquired out of receivership.
An Ingham County Circuit Court judge approved the auction asset sale to Canadian lender Tropics LP on Oct. 12.
Tropics LP, under a new entity called Skymint Acquisition Co., acquired the assets of Green Peak Industries, doing business as Skymint, for $109.4 million. No other bidders reached Tropics’ bid.
Tropics is a subsidiary of Sunstream Bancorp., which itself is a joint venture with the publicly-traded SNDL Inc. (NASDAQ: SNDL).
“This key milestone in Skymint’s ongoing restructuring represents another successful navigation of a complex process,” SNDL CEO Zach George said in a press release. “The sale order brings greater certainty, enables management at Skymint Acquisition Co. to focus on serving Michigan consumers and creates tangible U.S. optionality.”
Under the deal, Tropics gets Skymint’s cultivation assets as well as 21 retail leases with dispensaries that produced annualized sales of approximately $68 million in September 2023, the company said in a press release. The transaction is expected to be completed in the first quarter of next year.
Honigman LLP served as legal counsel for Tropics and Grand Rapids’ Miller Johnson acted as legal counsel for Skymint. Trust Street Advisors’ Gene Kohut served as the receiver in the case and was represented by The Dragich Law Firm.
Skymint entered receivership in March after Tropics filed a lawsuit over $127 million owed to the company.
Tropics loaned Green Peak $70 million in September 2021 towards the acquisition of competitor 3Fifteen Cannabis and its 12 dispensaries in Detroit, Grand Rapids, Ann Arbor, Flint and elsewhere.
Under the Tropics promissory note, Skymint agreed to repay the lender in full by September 2025 at an interest rate of 12.5%, compounding monthly, as well as sell some common shares of the company to Tropics, according to court records. Under the agreement, Skymint agreed to maintain a minimum cash balance of $7.5 million, which Tropics alleges in the suit that it failed to do in March last year. In response, Tropics loaned Skymint another $5 million, raising the loan total with fees to nearly $81.5 million.
Skymint did not meet its new loan obligation in June 2022 after failing to raise an additional $15 million in new funding. The company also failed to pay additional fees to Tropics, pay back rent on its E. Jolly Road facility in Lansing and pay certain taxes. The two parties entered into another agreement in November 2022 which included Tropics paying more than $5.8 million toward overdue sales and excise taxes for Skymint.
Tropics alleged in the court filing that Skymint’s daily sales revenue dropped from $356,953 in April 2022 to just $184,579 in January of this year, exacerbating an already bad financial picture. Skymint was allegedly burning through $3 million in cash per month and generated only $110 million in revenue in 2022, $153 million below its forecast of $263 million in sales for the year.
Skymint owed nearly $4 million in sales and excise taxes by March 25, the suit alleged.
Under the receiver, Skymint has faced more and more uncertainty.
Skymint and the receiver have battled in court with the owners of 3Fifteen, New York-based Merida Capital, who also lent Skymint $8 million toward the 3Fifteen acquisition.
Its lawyers have sought on several occasions to disjoin 3Fifteen from the court-ordered receivership, despite the acquisition closing more than a year ago. In the days prior to Skymint entering receivership, 3Fifteen Cannabis retook control of several stores acquired by Skymint, including dispensaries in Hamtramck, Grand Rapids, Camden and two in Battle Creek, according to court records.
But the circuit court judge in Ingham County ordered 3Fifteen to cede control back to Skymint, according to court records, as well as returned control of bank accounts with nearly $500,000 in funds and more than $600,000 spent on rent and bills for those dispensaries back to Skymint.
Merida alleged in its own lawsuit against Skymint in Oakland County Circuit Court that the company was mismanaged and that its co-founder and CEO Jeff Radway used the company as a personal piggybank. Radway took an “indefinite leave of absence” from the company in April.
Also in April, Skymint ceded its lease on the former Summit Sports and Ice Complex near Lansing. The company planned to double its marijuana production capabilities with the facility but never completed the build-out. Skymint surrendered the 176,000-square-foot facility and 21 acres back to developers, the country’s largest cannabis property developer Innovative Industrial Properties Inc.
San Diego-based IIP invested roughly $30 million to acquire and renovate the facility on Skymint’s behalf but sought to retake the property after Skymint failed to pay on its lease.
The auction of Skymint represents the largest marijuana business failure in Michigan — and possibly the U.S. — and highlights the difficult conditions these companies are operating under in Michigan, where prices have declined more than 80% since legalization in December 2019.
The price collapse is largely due to product oversupply — recreational marijuana retail prices have plummeted from $512.05 per ounce of flower in January 2020 to just $87.76 per ounce of flower in April this year — effectively eliminating margins for many businesses. Prices have since risen to more than $100 per ounce of adult-recreation flower.
At least five other Michigan marijuana companies are under a court-ordered receiver.
