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HIGHLIGHTS
  1. The entire leadership team of Eureka 93, formerly called Livewell, has resigned.
  2. The OSC cease traded Eureka 93′s stock in early September.
  3. The company said that Health Canada has licensed its Quebec greenhouse facility.

The entire senior leadership team of Eureka 93 Inc. and all but one board member have resigned from the company following a failed capital raise, a cease trade order on the company’s stock, and a collapse in cannabidiol prices in the U.S.

The management overhaul comes less than three weeks after the company announced that it had “commenced a review of strategic and financing alternatives” and laid off a “substantial portion of employees at all locations.”

It’s a dramatic turn for Eureka 93, formerly called LiveWell Canada Inc., which counted Canopy Growth Corp. and Canopy Rivers Inc. as key investors until recently, and had several high-profile Canadian businessmen – Michael Mueller, chair of Laurentian Bank of Canada; William MacKinnon, the former CEO of KPMG Canada; and Paul G. Smith, the former chair of Via Rail Canada – on its board of directors.

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Eureka 93’s share price has declined 96 per cent since the beginning of the year. In early September, the Ontario Securities Commission issued a cease trade order for the stock after Eureka 93 failed to file financial statements.

The company attempted to raise $15-million in a private placement in August, but the offering failed to attract investors, “due to adverse market conditions,” the company said.

David Rendimonti is out as chief executive, replaced by Seann Poli and Owen Kenney as interim co-CEOs.

Mr. Poli and Mr. Kenney co-founded Quebec-based LiveWell and Montana-based Vitality CBD Natural Health Products Inc., respectively, which merged earlier this year to become Eureka 93. Both men had left the company, but now return to run Eureka 93 as it hemorrhages money, defaults on mortgage payments and faces lawsuits on both sides of the border.

“Like many shareholders I later wondered what was impacting my stock so, together with Owen, we created a new team to bring the company back to its roots and bring value back to its shareholders. We fully intend to right the ship,” Mr. Poli said in a news release on Tuesday.

Mr. Poli was unavailable to comment further on Tuesday, according to a company spokesperson.

There was one bright point in Tuesday’s announcement: Eureka 93’s greenhouse facility near Ottawa has received a cultivation licence from Health Canada.

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“Eureka 93 will work with Health Canada through the process of a leadership transition with individuals already approved for the Artiva site and will be comparing hemp-based vs. cannabis-based opportunities that will bring the best value to the company,” the company said.

The Canadian licence arrives just after Eureka 93 “temporarily discontinued” its CBD extraction business in Montana, due to a price collapse for CBD isolate in the U.S.

“Due to the CBD isolate pricing crash that began late July 2019 and continued into August 2019 (from above $5,000 per kilo to approximately $2,500 per kilo), management refocused the production at it’s Montana facility to produce full plant extract oil. The cost to buy rich CBD biomass did not correct in August and consequently it was no longer profitable to produce CBD isolate,” the company said in a monthly report filed in early September.

Even before the price drop, Eureka 93 was struggling in Montana.

Ahead of the merger between LiveWell and Vitality, Montana’s Department of Agriculture suspended Vitality’s commodity dealer license, which allows it to buy hemp directly from farmers, after a subsidiary failed to pay $8-million it owed to 21 farmers. Eureka 93 is still able to source hemp from third-party brokers, but the farmers are suing the company.

LiveWell’s board and management knew about Vitality’s licencing challenges ahead of the merger. A third-party adviser retained by the board even said that it could not write a fairness opinion on the transaction “because of the significant uncertainty over production capacity and sales forecasts and the then unknown impact of the dispute with Montana farmers.”

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LiveWell’s board went ahead with the merger anyway in order to forestall a possible bankruptcy.

“In the judgment of the Livewell Board, there was a risk of bankruptcy or a requirement to sell LiveWell Canada at a price reflective of a distressed asset because the secured convertible notes issued during the first quarter of 2019 would become immediately due in the event that the Vitality Combination was not approved by LiveWell Canada’s shareholders,” the company said in its annual information form, filed in August.

The merger led to a falling out with Canopy Growth and Canopy Rivers, which had been early investors in Livewell. Both Growth and Rivers commenced legal proceedings against Eureka 93, claiming the firm had “breached a number of covenants in favour of Canopy Growth and Canopy Rivers.”

Eureka cut ties with Growth and Rivers in May. The lawsuit was settled in July “for an immaterial amount,” according to filings from Eureka 93.

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