Cannabis retailer Tokyo Smoke is shuttering 29 stores across the country citing $29M in net loss in 2023. The company’s deteriorating business has led it to file for creditor protection.
As per the press release rolled out on Wednesday, the Ontario Superior Court has handed an initial order under the Companies’ Creditors Arrangement Act (CCAA) to the retailer. Despite the mounting losses, the retailer says it will operate 167 stores across Ontario, Manitoba, Saskatchewan, and Newfoundland and Labrador during creditor protection proceedings.
The company is just a few months shy of a decade after its first store opened in Toronto. The retailer’s ‘about us’ page reads, “Alan & Lorne Gertner founded Tokyo Smoke in 2015. They opened the first brand store in Toronto, which quickly became a community hub where frank and open conversations about cannabis were possible. In 2017, we expanded our presence to Calgary and won Best Brand at the Canadian Cannabis Awards. Now, in 2018, our footprint is spreading nationwide. We are proudly one of only four retailers granted licenses to operate cannabis retail storefronts in Manitoba. With recreational cannabis use now legal in Canada, what started as a tiny Tokyo Smoke storefront now stands to change cannabis culture in a big way.”
CCAA monitor, Alvarez & Marsal Canada Inc. explained the events that led Tokyo Smoke to file for creditor protection pointing out an instrumental role of regulatory changes that have “devalued cannabis retail licenses and saturated the market.” In addition, the market is also experiencing “downward price pressures on retail cannabis due to lack of product differentiation between retailers.”
As per an August 27 document, the companies’ liabilities exceed the assets by 89.1M. The document reads, “As [of] June 30, 2024, the applicants held assets with a book value of approximately $148.2M and had liabilities with a book value of approximately $237.4M. The companies have been operating at a loss and are wholly dependent on financing from related parties and third-party lenders to meet their working capital needs. Tokyo Smoke had a net loss of $29.3M for the fiscal year ended June 30, 2024. Without financing, the companies are not able to satisfy their obligations as they become due.”
