Tokyo Smoke Enters CCAA Restructuring Amid Financial Challenges

On August 28, 2024, 2675970 Ontario Inc. et al. (“Tokyo Smoke”), a group of cannabis companies that own, operate and franchise retail dispensaries across Canada under the “Tokyo Smoke” brand name, commenced proceedings under the Companies’ Creditors Arrangement Act (the “CCAA”) in order to restructure operations.

Tokyo Smoke is facing financial difficulties due to recent changes in licensing rules that have lowered the value of cannabis retail licences, combined with market saturation, downward pricing pressures and increased operating costs. Tokyo Smoke reported a net loss of $29.3 million last fiscal year and relies wholly on financing and third-party lenders to meet its working capital needs. With secured debt of around $91 million, including approximately $38.6 million owed to the Bank of Montreal (“BMO”) as primary third-party lender, the CCAA proceedings are intended to implement a restructuring plan that closes underperforming stores, renegotiates leases for other locations and launches a sale and investment solicitation process.

Pursuant to the initial order of the Ontario Superior Court of Justice (Commercial List), Alvarez & Marsal Canada Inc. was appointed as monitor. TS Investments Corp. is acting as the stalking horse bidder and will provide debtor-in-possession financing.

Aird & Berlis is representing BMO with a team that includes Steven Graff, Kyle Plunkett, Samantha Hans and Adrienne Ho (Financial Services).