Agra Ventures Ltd. has mutually agreed to effectively terminate and amicably exit the Propagation Services Canada Inc. (doing business as Boundary Bay Cannabis) joint venture (BBC or the JV) by way of executing a series of agreements with its JV partner and related entities. Effective today, the company has settled its debt receivable and sold its equity interest in BBC to its JV partner for an aggregate of $250,000, and Nick Kuzyk, chief executive officer and director of Agra, has resigned as an officer and director of the JV.
In addition, a mutual release has been executed between Agra, a wholly owned subsidiary of Agra, and their respective directors and officers; and BBC, the landlord, the JV partner, and their respective directors and officers. By exiting BBC, the company has taken a significant step toward stemming its tide of financial losses, and, therefore, is now better positioned to preserve its current cash balance, pursue the collection of its remaining receivables, vend other non-core assets and consider a strategic pivot in a more promising direction within the cannabis industry.
Over time, the JV partner's talented team proved that it was able to successfully grow and process the high-potency Mimosa strain of cannabis using approximately 130,000 square feet of the 2.2-million-square-foot greenhouse complex. Despite selling essentially all of the bulk cannabis that was produced within the greenhouse facility in Delta, B.C., with the added assistance of an adept third party wholesale cannabis brokerage firm in order to attract the best purchasers, high levels of supply resulting in declining market prices, combined with high operating costs, prevented the JV from being profitable at any time.
Since inception, BBC had accumulated approximately $25-million in losses and was not expected to record net income in the foreseeable future due to unfavourable industry conditions, an onerous regulatory framework and unattractive competitive dynamics as a licensed producer of cannabis in Canada. Therefore, Agra and its JV partner amicably agreed to terminate the growing of cannabis after the 2022 growing season and exit the JV pursuant to the recently executed agreements.
Management commentary
"Continuing to lose significant amounts of money through BBC was not a viable option for Agra or for its JV partner. Ceasing cannabis growing operations to stop the financial losses was a difficult but necessary joint decision, which is one that is also being made by management teams in other segments across the Canadian cannabis industry, even quite recently in a significant way at the retail end of the value chain," said Mr. Kuzyk, director and chief executive officer of the company.
"I understand that many of Agra's shareholders were hopeful that BBC would become a national leader in cannabis production. Unfortunately, the recreational cannabis industry has not been set up for success, and significant changes are needed to the Cannabis Act and other tax-related improvements in order for the plant-touching aspects of the industry to become economic at a reasonable scale. However, exiting the JV gives Agra's board of directors the opportunity to consider a new direction for the company, based on its collective areas of expertise and more attractive alternatives currently available in the market," added Mr. Kuzyk
