BioSteel, a Canadian sports beverage company, seeks creditor protection while pursuing a new buyer.

17 Sep, 2023

BioSteel, a Canadian sports beverage company, seeks creditor protection while pursuing a new buyer.

The owner of BioSteel Sports Nutrition Inc., a sports drink company based in Ontario, has announced that the company has filed for creditor protection in both the United States and Canada. The company is actively seeking a buyer for its business.

BioSteel's primary backer, Canopy Growth, the largest cannabis company in North America, stated in a recent press release that it has stopped funding BioSteel. "As a consequence, BioSteel has commenced proceedings pursuant to the Companies Creditors Arrangement Act (CCAA) in Canada." Simultaneously, the company will seek creditor protection under Chapter 15 of the U.S. bankruptcy code.

The decision to pursue CCAA proceedings was made because BioSteel no longer had access to the necessary funding, and the brand was consistently generating negative cash flow. The company opted to preserve its assets by conserving cash and putting the business on hold. BioSteel is now seeking creditor protection through CCAA to facilitate a court-supervised sale process for the benefit of its stakeholders.

Canopy Growth has invested approximately $366 million in BioSteel since its takeover in 2019, with the company incurring a monthly cash burn rate of around $15 million, as per court documents. Canopy attributes about 60 percent of its financial losses this fiscal year to BioSteel.

The insolvency filing will result in the layoff of approximately 181 employees at the BioSteel division out of its 190 employees in the U.S. and Canada as of August. The future of the remaining employees is uncertain.

BioSteel's sales have been growing, with $24 million in sales revenue booked in the first three months of 2023, more than double the figure from the previous year. However, the cost of these sales exceeded $90 million, and other expenses totaled over $114 million, including a significant increase in advertising and promotional costs related to its NHL sponsorship.

BioSteel is also facing regulatory challenges, as Canopy revealed an investigation into the company's financials, which uncovered revenue overstatements primarily related to business-to-business sales outside of Canada and the United States. This investigation has drawn the attention of the SEC and regulatory authorities in Canada.

Despite the CCAA proceedings, BioSteel's goal is to find a buyer interested in operating it as an independent company. The company has engaged with 24 potential buyers, including some from its current and former management team. While preliminary non-binding proposals have been received, none of the parties have fully committed financing to meet BioSteel's immediate operating needs. Therefore, the CCAA filing is intended to provide additional time to address the necessary details for potential deals to move forward.