Flower One, a leading cannabis cultivator and producer, announced signing a $10.1 million term loan financing agreement on February 14 this year. The Nevada-based cannabis firm also disclosed that it made significant strides in its ongoing debt restructuring through an additional loan modification agreement with its lenders.
According to a report by MJBizDaily, an unspecified existing shareholder facilitated the financing of the loan to help boost the firm’s efforts to cut down on expenditure.
Kellen O’Keefe, President and CEO of Flower One, expressed that closing the debt financing deal is a significant step for the cannabis firm. He went on to say that the funding would help Flower One complete immediate facility improvements to better position it for long-term success. Moreover, the financial support will go a long way in helping the firm prepare for a strong return after the COVID-19 pandemic.
Flower One and its subsidiaries have also entered into a Loan Modification Agreement with RB Loan Portfolio II LLC due to an existing unpaid loan worth $30 million. Essentially, a Loan Modification Agreement refers to a change in the original terms.
The move was meant to remedy the situation after Flower One received default notices on delayed debt payments from its lenders early last year.
RB Loan Portfolio II LLC issued Flower One with the default notices for interests amounting to $262,500 in connection to the $30 million loan they received from RB Loan Portfolio I LLC. The company was also behind on another loan from the same lender for greenhouse lease payments amounting to $526,677. Both of these loan repayments were due in January 2021.
Even so, closing the Loan Modification Agreement and subsequently securing millions in funding strongly indicate that the financial partners of Flower One are confident in the company. Furthermore, it displays their belief in the ability of the brand’s leadership to execute a turnaround plan successfully after a rather challenging period.
Given how difficult it can be for cannabis businesses to gain financial support, this opportunity was nothing short of heaven-sent.
The Loan Modification Agreement will permit Flower One to make several meaningful actions to regain stability in the cannabis market. First and foremost, it would allow the company to receive the new term loan. A loan modification enables two parties to renegotiate the terms of the loan. For this reason, Flower One was able to get back on track and become eligible for more financial aid.
Moreover, the firm can reduce the monthly interest from 14 percent to 10 percent and capitalize the Payment in Kind (PIK) Interest after completing all loan repayments.
Although securing the new term loan and the Loan Modification Agreement will aid Flower One’s cash preservation efforts, they are seemingly inadequate.
Therefore, the firm’s executive team has agreed to immediate pay cuts to help with the ongoing reconstructive process. Moreover, the company’s Board of Directors has also elected to reduce their compensation to help reduce overall expenditure.
Flower One has also taken several steps to reduce its operating expenses. The company has introduced automation and new equipment in multiple areas, including dispensary packaging, vape-filling, and more. It will enable the firm to generate more sales and eventually profitability.
Due to these measures, many are keeping an eye on the stocks of Flower One Holdings. The company’s future growth earns it a spot as one of the lucrative firms among the numerous cannabis stocks. Its shares trade as FONE on the Canadian Securities Exchange and FLOOF on other markets.
Flower One’s Chief Financial Officer (CFO), Araxie Grant, commented that reducing its cost of operation and interest obligations will immensely improve its cash flow. She also expressed her determination to get the firm back to winning ways and appreciated the continued support of the firm’s financial partners.
On top of this recent progress, Flower One also raised $5 million last year in the first tranche of a non-brokered private placement. Essentially, in a non-brokered private placement, investors place their money directly in the company.
Companies typically use this financial strategy to save money on transaction fees. This type of financing is perfect for businesses with access to numerous contacts and networks, which eliminates the use of a broker.
Flower One used the proceeds from the first tranche of the private placement to implement critical improvements in its facilities, as well as general corporate and working capital purposes.