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BioSteel Sports Nutrition Inc. has filed for bankruptcy protection in Canada and the U.S., citing rapidly deteriorating liquidity despite receiving hundreds of millions in funding from parent company Canopy Growth Corp.

In Thursday’s filing, which followed months of going concern warnings, Ontario-based Canopy said it is no longer willing to sink cash into BioSteel and that it has fired or given working notice to the sport-drink company’s 181 employees, as part of its larger effort to cut expenses. The cannabis company said it intends to find a new buyer for BioSteel through the Companies’ Creditors Arrangement Act process.

BioSteel ”does not align with Canopy Growth’s cannabis focused asset-light strategy,” Canopy chief executive David Klein said in a news release Thursday.

Canopy first acquired a 72-per-cent stake in BioSteel in 2019 for about $50-million with the hope of developing CBD-infused sports drinks, and has since raised its stake to 90 per cent. Since the initial purchase, Canopy has invested $366-million in the sports-drink company through a secured loan and credit facility.

Canaccord Genuity analyst Matthew Bottomley said that while BioSteel still represents about one-third of Canopy’s revenue, the mounting operating losses made Canopy’s move to pull the plug “an incremental positive.” BioSteel accounted for 60 per cent of the company’s consolidated losses in the first quarter of 2023.

“We view today’s decision by Canopy as likely the best of a bad situation,” Mr. Bottomley said.

Earlier this year, Canopy sold its Smiths Falls, Ont., head office and laid off 800 workers as part of its plan to reach profitability. The company’s shares on the Toronto Stock Exchange are down 42 per cent since the beginning of 2023. The shares closed the day up almost 9 per cent on Thursday after the BioSteel news was released.

While BioSteel had “year-over-year” revenue growth, according to a document filed with U.S. securities regulators, it was still reliant on Canopy for financing. In an affidavit filed as part of CCAA proceedings, BioSteel’s general counsel, Sarah Eskandari, said that BioSteel still required approximately $15-million a month from Canopy.

The CCAA filing follows an embarrassing stumble last year, when Canopy was forced to restate its financial statements after finding numerous material misstatements related to BioSteel’s revenue.

In its Thursday press release, Canopy said it expects associated annual cash savings in excess of $100-million. In documents filed with the U.S. Securities and Exchange Commission, it said it expects to incur an asset impairment charge of between $100-million and $130-million in the second quarter of fiscal year 2024 in conjunction with the CCAA process.

BioSteel has signed expensive sponsorships with high-profile athletes and teams, and had a continuing advertising deal with the National Hockey League. The payments for those sponsorships are coming due in the fourth quarter of 2023 and first quarter of 2024, and would have cost the company $12-million. But Ms. Eskandari said BioSteel does not intend to use those sponsorship services or make the payments.

KSV Restructuring Inc. has been appointed BioSteel’s court monitor.

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Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 24/05/24 4:00pm EDT.

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Canopy Growth Corp
-0.08%12.52

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