Mon 12/21/2020 19:37 PM
Share this article:
Relevant Documents:
Voluntary Petition
20 Largest Unsecured Creditors
Schedules / Statement of Financial Affairs
First Day Declaration
DIP Financing Motion
Cash Collateral Motion
First Day Hearing Notice

















Summary
GL Brands develops and distributes cannabis-derived wellness products with focus on CBD and hemp
Seeks to reorganize, convert debt to equity and de-leverage
Requests $750,000 in DIP financing from prepetition secured creditor Merida Capital Partners


GL Brands, Inc., a Fort Worth, Texas-based global developer and distributor of cannabis-derived wellness products with a focus on CBD and hemp consumer packaged goods, filed for chapter 11 protection on Thursday, Dec. 17 in the Bankruptcy Court for the Northern District of Texas, with an “overleveraged and unsustainable” capital structure and expecting to run out of cash by end of the year. The debtors seek to reorganize, convert debt to equity and de-leverage their balance sheet. The debtors say that their business “has a bright future if it can survive in the short run.” With “little” fixed capital, the debtors say their value is in future profits. Continue reading for our First Day team's analysis of the GL Brands chapter 11 filing and Request a Trial for access to the above documents and analysis as well as our coverage of thousands of other stressed/distressed debt situations.

The debtors’ secured creditor, Merida Capital Partners III LP, which is owed $260,240, has, along with affiliates, invested more than $6 million in the debtors, in the form of stock purchases and loans. Merida has agreed to provide $750,000 in DIP financing with a 15% interest rate, and has agreed to the use of cash collateral. “If the Debtors were authorized to use cash collateral and continued operating as a going concern, the unsecured creditors should receive a substantial distribution,” the debtors say, but that in a liquidation unsecured creditors would get “little or nothing” as Merida has liens on all “significant” assets securing its debt of $260,240. In a liquidation, the debtors say that their assets are not worth more than that.

The first day hearing has been scheduled for Tuesday, Dec. 22 at 10:30 a.m. ET.

The company reports $16,683 in assets and $11.7 million in liabilities. The company’s prepetition capital structure includes:

  • Secured debt:

    • Merida Capital Partners III LP: $260,240



  • Unsecured debt:

    • Unsecured notes:

      • MCP Wellness II, LP (Merida affiliate) convertible note: $5.4 million

      • Merida: $992,998



    • Trade/lease debt: $450,000

    • Trade creditor judgment: $28,000

    • Founder obligations: more than $5 million





  • Equity: GL Brands’ stock is traded on the OTCQB marketplace under the ticker GRLB. Three of the founders of the Green Lotus Companies, Carlos Frias, Ngoc Quang "Daniel" Nguyen, and Alexandro Frias, and the founder of Freedom Leaf Inc., Clifford Perry, collectively own a majority of the shares and exercise control of the debtors. Merida owns approximately 4% of the issued and outstanding shares.


The debtor is represented by Whitaker Chalk Swindle and Schwartz in Fort Worth. The case has been assigned to Judge Edward L. Morris (case number 20-43800).

Background

The debtors' current structure emerged in May 2019 when Freedom Leaf Inc. closed the purchase of ECS Labs, LLC, which wholly owns two subsidiaries, B & B Labs, LLC and Texas Wellness Center, LLC, and thereafter changed its name to GL Brands. The debtors say that they anticipate consolidating the corporate structure through a plan of reorganization. The debtors sell hemp-based dietary and health supplements, including tinctures, softgels, gummies, sparkling beverages, vapes, flowers, pre-rolls, and topical ointments with hemp oil and cannabidiol, or CBD, as active ingredients “to promote general wellness and balance.” The debtors' products are sold as nutritional supplements, not food items. The debtors' premier brands are Green Lotus Hemp and IrieCBD.

The debtors’ products are sold in drug stores, health food stores and stores specializing in dietary supplements in the U.S. and Mexico, and are also sold directly to customers online.

The company issued a press release in June announcing the launch of organic, gluten-free wild berry melatonin CBD gummies by its flagship brand, Green Lotus Hemp, “a premium hemp oil products brand dedicated to promoting a world where the healing power of hemp is readily accessible.”

The debtors' largest unsecured creditors are listed below:










































































10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
MCP Wellness ll LP New York Convertible Note $   5,542,740
Carlos Frias Arlington, Texas. Employment Agreement 2,400,000
Ngoc Quang
"Daniel" Nguyen
Cocoa Beach, Fla. Employment Agreement 2,000,000
Alexandro Frias Fort Worth, Texas Employment Agreement 1,600,000
Merida Capital Partners
II & Ill LP
New York Promissory Notes 992,998
BVP 3939 Belt Line, LLC Dallas Lease Agreement 874,454
Elgin B. Allen, Jr. Dallas Note Payable 701,000
CBD Life Tlalpan, Ciudad
de Mexico
Business Debt 300,000
KCSA Strategic
Communications
New York Shareholder
Relations Work
159,000
Hiep Tran Houston Note 150,000

The case representatives are as follows:


























Representatives
Role Name Firm Location
Debtors' Counsel Robert A. Simon Whitaker Chalk Swindle
& Schwartz
Fort Worth, TX
Counsel to the DIP
Lender and Existing
Secured Creditor
Dov Kleiner Kleinberg, Kaplan, Wolff
& Cohen
New York



DIP Financing Motion / Cash Collateral Motion

The debtors seek approval of $750,000 of DIP financing ($145,000 on an interim basis) from Merida in the form of a revolving loan. The debtors would be required to pay “Excess Cash” (generally any amount greater than $25,000 other than those needed for budgeted expenses) weekly to reduce the principal.

With negative shareholder equity, operating losses, very limited fixed assets, and no unencumbered assets, the debtors say that the DIP lender “is willing to take that risk because it has already made a substantial investment in the Debtors.”

The debtors also request the use of cash collateral, with Merida’s consent, proposing as adequate protection replacement liens from all debtors and superpriority administrative expense claims (other than from debtor Leafceuticals, Inc., which the debtors say did not grant a prepetition lien to Merida).

The DIP financing bears interest at 15%, with 17% for the default rate. The debtors say that though the interest rate is “high,” that they expect to file a plan of reorganization and March and do not expect to be in bankruptcy for long. The loan matures on (a) the effective date of a plan of reorganization, (b) upon the sale of all or substantially all of the debtors’ assets, (c) an event of default or (d) March 31, unless the debtors file a plan of reorganization by then, and on June 30 if a plan of reorganization is not confirmed by that date. The DIP financing is conditioned on the plan providing that DIP obligations be repaid in full in cash or otherwise acceptable to the DIP lender, otherwise the DIP obligations would become immediately due and payable.

The DIP financing would be secured by “first-priority, post-petition liens on all assets of the Debtors.” The debtors do not propose a lien on avoidance actions or their proceeds.

GL Brands owns certain shares of Rocky Mountain High Brands, Inc., an unrelated company that markets CBD based beverages, which shares it acquires as a result of the settlement of a business dispute unrelated to the debtors' chapter 11 filings. The Rocky Mountain High Brands’ shares are subject to Merida’s prepetition liens. The debtors will be permitted, though not required, to liquidate the stock between Jan. 1 and June 30, with the proceeds applied to repay the pre-petition existing Merida debt, and the “Existing Secured Creditor and the DIP Lender each consent to the stock sale and to the foregoing use of proceeds.”

The facility includes a 1% commitment fee.

In addition, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c). The carveout for professional fees is $75,000.

The proposed budget for the use of the DIP facility is HERE.

The DIP financing is subject to the following milestones:

  • File plan of reorganization: March 31

  • Plan confirmation: June 30


Other Motions

The debtors also filed various standard first day motions, including the following:

Share this article:
This article is an example of the content you may receive if you subscribe to a product of Reorg Research, Inc. or one of its affiliates (collectively, “Reorg”). The information contained herein should not be construed as legal, investment, accounting or other professional services advice on any subject. Reorg, its affiliates, officers, directors, partners and employees expressly disclaim all liability in respect to actions taken or not taken based on any or all the contents of this publication. Copyright © 2021 Reorg Research, Inc. All rights reserved.
Thank you for signing up
for Reorg on the Record!