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The company is set to initiate workforce reductions at the Harvest Park facility starting on February 12th.
Skymint, a prominent cannabis company currently navigating the intricacies of acquisition while in receivership, has made a significant announcement regarding the cessation of operations at its growing processing facility situated near Lansing, Michigan. This decision entails the closure of the expansive 56,000-square-foot Harvest Park plant, precisely located at 10070 Harvest Park in Dimondale. The repercussions of this strategic shift are expected to manifest in the form of layoffs, impacting approximately 180 employees by the stipulated date of March 1st. The revelation of this pivotal decision was made through an internal memo disseminated to the company’s workforce, with a copy of the memo having been obtained by Crain’s.
Within the internal communication, Jeff Donahue, holding the position of Skymint’s Executive Vice President and General Counsel, expounded upon the underlying rationale driving this consequential move. Donahue alluded to the substantial transformations witnessed within the cannabis industry over recent years, which have posed escalating challenges to the company’s ability to sustain cost-effective growing and processing operations at the Harvest Park facility. He underscored the necessity of this decision to fortify Skymint’s competitive standing within the marketplace and secure its enduring viability.
It is important to underscore that, despite the closure of the Harvest Park facility, Skymint continues to actively operate 22 retail locations across the state, as officially indicated on its website. Nevertheless, the company has confronted formidable hurdles in its recent history. Once a prominent and influential player within Michigan’s cannabis market, Skymint encountered financial setbacks that were primarily attributed to a pronounced decline in cannabis prices, coupled with allegations of mismanagement.
At present, representatives from Skymint, as well as its prospective new owners, the prominent Canadian entity known as Tropics LP, have refrained from providing responses to inquiries made by Crain’s pertaining to this noteworthy development. Notably, the acquisition deal that aims to extricate Skymint from its financially precarious situation was initially anticipated to conclude during the early stages of the forthcoming year. The precise nexus between the decision to close the Harvest Park facility and the ongoing acquisition process facilitated by Tropics LP remains shrouded in ambiguity.
Skymint’s Acquisition and Financial Challenges: Workforce Reduction and Strategic Changes
In accordance with the memorandum mentioned above, the company is poised to embark on a strategic course of action, commencing on February 12th, which entails the initiation of a comprehensive workforce reduction program at its Harvest Park facility.
It is noteworthy that Tropics LP, operating under the newly established entity named Skymint Acquisition Co., undertook a noteworthy acquisition endeavor aimed at acquiring the assets of Green Peak Industries, operating under the Skymint brand. This strategic transaction, executed as a stalking horse bid during the month of October, constituted a significant financial commitment, amounting to a substantial $109.4 million. It is pertinent to mention that Tropics LP operates as a subsidiary of Sunstream Bancorp, a prominent entity with a distinct stature forged through a joint venture with the publicly traded SNDL Inc. (NASDAQ: SNDL).
Within the ambit of this acquisition, Tropics LP has assumed the mantle of ownership over Skymint’s extensive cultivation assets, in addition to gaining control over 22 retail lease agreements that encompass dispensaries. Of noteworthy significance is the fact that these dispensaries collectively contributed to an impressive annualized sales figure, reaching approximately $68 million, as explicitly outlined in the official news release disseminated by the company.
The genesis of Skymint’s intricate financial circumstances and eventual receivership can be traced back to a legal action initiated by Tropics LP. This legal action sought to remedy an outstanding debt of $127 million owed to the company by Skymint. The complexity of this financial predicament arose from a transaction wherein Tropics LP extended a substantial loan amounting to $70 million to Green Peak in the preceding year, specifically in September. The purpose of this loan was primarily to facilitate the acquisition of a competitor entity known as 3Fifteen Cannabis, which included the takeover of a dozen dispensaries strategically located across key regions such as Detroit, Grand Rapids, Ann Arbor, Flint, and several other locales. The court records meticulously outline the terms of the Tropics promissory note, which mandated that Skymint was under a binding obligation to fully repay the lender by the stipulated deadline of September 2025, encompassing an interest rate of 12.5%, compounded on a monthly basis. Furthermore, this agreement incorporated provisions regarding the sale of specific common shares of the company to Tropics.
A crucial element inherent to the contract was Skymint’s obligation to uphold a minimum cash reserve of $7.5 million. Regrettably, Tropics has asserted in the context of the ongoing lawsuit that this stipulation was not adhered to as of March of the previous year. Consequently, Tropics extended an additional loan amounting to $5 million to Skymint, thereby increasing the cumulative loan amount, inclusive of associated fees, to an approximate total of $81.5 million. It is imperative to acknowledge that Skymint encountered significant challenges in meeting the revised loan obligation, particularly in June 2022. These difficulties were further compounded by the company’s inability to secure an additional $15 million in new funding. This financial predicament subsequently precipitated a series of adverse developments, including the failure to remit outstanding rent payments for its facility located on East Jolly Road in Lansing, as well as the unfortunate delinquency in settling certain tax obligations.
Skymint Faces Financial Challenges: Tax Dispute, Revenue Decline, and Facility Relinquishment
In a subsequent development occurring in November 2022, the two involved parties, Skymint, and Tropics, entered into yet another contractual arrangement of significance. Within the confines of this agreement, Tropics assumed the fiduciary responsibility of disbursing a substantial sum exceeding the mark of $5.8 million. This monetary allocation was expressly designated for the purpose of settling Skymint’s outstanding obligations related to sales and excise taxes.
The court filing pertaining to this legal dispute offers additional insights into the financial tribulations faced by Skymint. It highlights a discernible decline in the company’s daily sales revenue, a pivotal financial metric. Specifically, Skymint’s daily sales revenues saw a precipitous decline from an impressive $356,953 in April 2022 to a considerably reduced figure of $184,579 by January of the current year. This significant reduction in revenue served to compound the already tenuous financial predicament facing the company. Notably, during this period, Skymint was reported to be depleting its cash reserves at an alarming rate, to the tune of approximately $3 million per month. Despite its diligent efforts to navigate these financial challenges, Skymint’s revenue for the entire year of 2022 amounted to $110 million. This figure, while substantial, fell notably short of the company’s initial sales projection, which had optimistically anticipated revenue reaching $263 million for the same period.
Furthermore, the lawsuit filed against Skymint underscores the existence of an outstanding tax liability, which had accrued to nearly $4 million by the critical date of March 25th. This tax obligation encompassed both sales and excise taxes, adding further financial strain to the company’s fiscal position.
In April, Skymint made the strategic decision to relinquish its lease agreement concerning the former Summit Sports and Ice Complex, a facility located in close proximity to Lansing. Originally, the intention behind this lease was to facilitate a robust expansion of Skymint’s cannabis production capabilities, leveraging the substantial 176,000-square-foot facility along with its accompanying 21 acres of land. However, the envisioned build-out of this facility remained unrealized. Consequently, Skymint opted to return the facility, including the adjacent 21 acres of land, to the property developers. It is of particular significance to note that these property developers are affiliated with Innovative Industrial Properties Inc., an entity of substantial repute and distinction within the cannabis industry. Innovative Industrial Properties Inc. holds the distinction of being the largest cannabis property developer in the United States, with its headquarters situated in San Diego.
Remarkably, Innovative Industrial Properties Inc. had invested a substantial sum, approximating $30 million, for the acquisition and renovation of the facility on behalf of Skymint. The primary objective underlying this significant investment was the establishment of a state-of-the-art production facility. However, due to Skymint’s inability to fulfill its lease obligations, Innovative Industrial Properties initiated efforts to regain possession of the property.
It is worth emphasizing that Innovative Industrial Properties Inc. also maintains ownership of the Harvest Park property. Given this connection, inquiries have naturally arisen concerning the future course of action and disposition of the Harvest Park plant. As of the present moment, representatives from Innovative Industrial Properties Inc. have refrained from providing substantive responses to inquiries made by Crain’s regarding the precise plans and intentions pertaining to the Harvest Park plant’s future.
