Skymint, One of Michigan’s Largest Cannabis Companies, Under Control of Receiver Amid Industry Pressures

MICHIGAN– Skymint, one of Michigan’s largest cannabis cultivators and retailers, is now under the control of a receiver as the industry faces an increasingly difficult market in the state. The Ingham County Circuit Court in Lansing appointed Gene Kohut, a partner at Detroit-based business advisory firm Trust Street Advisors, as the receiver in what could be one of the largest cannabis company failures in the U.S. since the substance was legalized in certain states. Skymint, which primarily operates under the parent company of Green Peak Innovations Inc., owes more than $127 million to Canadian investment firm Tropics LP, according to a lawsuit filed in the Ingham County court on March 3.

Michigan’s cannabis industry has suffered an epic price collapse due to product oversupply, with recreational cannabis retail prices plummeting from $512.05 per ounce of flower to just $80.16 per ounce of flower in January, effectively eliminating margins for many businesses. Skymint was an early entrant into the market and blazed an aggressive growth strategy, currently employing more than 600 across 24 retail dispensaries around the state and three indoor grow operations in Dimondale and Lansing. But its strategy appears to have been unprepared to tackle falling prices.

Tropics LP, a subsidiary of Calgary-based Sundial Growers Inc.’s (NASDAQ: SNDL) investment firm SunStream Bancorp Inc., 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. Merida Capital Holdings and its affiliates, a majority shareholder in 3Fifteen, also lent $8 million toward the 3Fifteen purchase. However, Green Peak did not meet its new loan obligation in June 2022 after failing to raise an additional $15 million in new funding, according to the lawsuit.

Under the Tropics promissory note, Green Peak agreed to repay the lender in full by September 2025 at an interest rate of 12.5 percent, compounding monthly, as well as sell some common shares of the company to Tropics, according to the lawsuit. Green Peak also 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 Green Peak another $5 million, raising the loan total with fees to nearly $81.5 million.

Michigan Governor Gretchen Whitmer signed amendments to the state’s cannabis laws to allow for receiverships in 2020. However, marijuana companies cannot avail themselves of financial obligations in bankruptcy court as cannabis remains a Schedule 1 narcotic under the federal Controlled Substances Act, leaving marijuana businesses without the benefit of protection under the U.S. bankruptcy code. Tropics is asking the receiver to take possession of Green Peak’s assets.