Tue. Sep 26th, 2023
    BioSteel Sports Nutrition Files for Bankruptcy Protection

    BioSteel Sports Nutrition Inc., a sports drink company funded by parent company Canopy Growth Corp, has announced that it has filed for bankruptcy protection in both Canada and the United States. Despite receiving hundreds of millions in funding, BioSteel has cited rapidly deteriorating liquidity as the reason for its bankruptcy filing.

    In a press release, Canopy Growth Corp stated that it is no longer willing to invest further funds into BioSteel and has terminated the employment of all 181 of the sports drink company’s employees. Canopy has also stated that it intends to find a new buyer for BioSteel through the Companies’ Creditors Arrangement Act process.

    Canopy Growth Corp initially acquired a 72% stake in BioSteel in 2019 with hopes of developing CBD-infused sports drinks. Since then, Canopy has raised its stake to 90% and has invested a total of $366 million in BioSteel through a secured loan and credit facility. However, the mounting operating losses of BioSteel have led Canopy to cut their losses and seek a buyer.

    Canaccord Genuity analyst Matthew Bottomley has stated that BioSteel still accounts for around one-third of Canopy’s revenue. However, the increasing operating losses have made Canopy’s decision to terminate their investment a positive move. BioSteel accounted for 60% of Canopy’s consolidated losses in the first quarter of 2023.

    This bankruptcy filing follows Canopy Growth Corp’s recent efforts to cut expenses, including the sale of its Smith Falls head office and the layoffs of 800 workers. Canopy’s shares have also experienced a decline of 42% since the beginning of 2023. However, after the news of BioSteel’s bankruptcy filing was released, Canopy’s shares rose by 13.1%.

    Although BioSteel had seen revenue growth, the company was still reliant on Canopy for financing. In an affidavit filed as part of the bankruptcy proceedings, BioSteel’s general counsel stated that the company required approximately $15 million per month from Canopy.

    Canopy Growth Corp has announced that it expects to save over $100 million annually as a result of terminating its investment in BioSteel. The company also expects to incur an asset impairment charge between $100 million and $130 million in the second quarter of fiscal year 2024 in connection with the bankruptcy process.

    Despite the bankruptcy filing, BioSteel has signed expensive sponsorships with high-profile athletes and teams, including a continuing advertising deal with the National Hockey League. However, BioSteel has stated that it does not intend to use these sponsorship services or make the corresponding payments.

    KSV Restructuring Inc. has been appointed as BioSteel’s court monitor during the bankruptcy proceedings.

    Sources: Canopy Growth Corp, Canaccord Genuity, U.S. Securities and Exchange Commission