Beleaguered Winnipeg cannabis producer Bonify, which temporarily lost its coveted Health Canada cannabis sales licence in February after obtaining illicit cannabis and selling it into the new legal market, went hat-in-hand to shareholders this year seeking short-term cash to keep the company afloat, documents obtained by the Free Press show.
Bonify's cannabis sales licence was reinstated by Health Canada in October, but the privately held company was unable to sell its crop for months while the licence was suspended. A letter sent to shareholders in July warned that getting the suspension lifted was taking longer than expected, putting "considerable strain on the remaining cash resources of the company."
The letter referenced a debenture issue to shareholders in March, which aimed to raise between $2 and $3 million to fund Bonify's operations for six to nine months while the company's board sought acquisition by an unspecified "larger entity." The March debenture issue ultimately raised $2 million, but that funding was drying up as of July.
The acquisition sought by Bonify's board never took place, the company told shareholders in July, but efforts continued to find another buyer. Meanwhile, the board needed more money to keep Bonify operating. The July letter said Bonify was sitting on cannabis inventory with a sales value estimated at $1.1 to $1.4 million at the end of June, with more harvests planned for later in the summer. The company hoped that selling those crops after regaining its licence could provide some much-needed cash.
Term sheets sent to shareholders in July show Bonify asked for short term loans, repayable at year's end at a 13 per cent interest rate. Bonify also offered shareholders unsecured convertible debentures with a one-year term at an interest rate of 20 per cent.
"Clearly the company (was) running out of money," said Dennis Ng, a University of Winnipeg economics instructor who reviewed Bonify's term sheets.
"What they were saying is, basically, 'We're trying to sell our company, and we just need enough money to get through to a point where, if we get our licence back, hopefully a buyer will find us attractive.'"
The letters to shareholders didn't say how much money Bonify raised from its summer fundraising attempts, but a September shareholder update said short-term funds raised in August, which were expected to last for just one month, were stretched out for two months.
"Once again, we underestimated the time it would take for Health Canada to render a decision and are nearing the end of our cash resources... We may need to call on shareholders to help bridge the gap until our licence is reinstated and our relationship (is) normalized with our bank."
The September letter also referenced production problems at Bonify's facility in Winnipeg's North End, including "continued humidity and temperature issues within the growing and drying areas" and unspecified "contamination" that led the firm to destroy its mother plants and sanitize its "mother room". (Commercially-produced cannabis is typically grown from cuttings snipped off plants called "mothers," which are kept separate from other plants.)
Despite those challenges, Bonify told shareholders that its cultivation team had improved harvest yields, which "bodes well for future success."
An October shareholder update announced the reinstatement of Bonify's Health Canada licence, and assured investors that production was back on track.
"Plant care procedures are up to date and the plants themselves look vibrant and healthy," said the letter, which went on to say that Bonify raised more short-term funding in September and was seeking more liquidity from its bank.
Bonify was planning to find new equity via a future share offering, the October update told shareholders. The company was still considering "strategic partnerships, investments and/or potential mergers," the letter said.
Bonify declined an interview request for this story. In a statement, interim general manager Pierre Morris highlighted that Bonify was able keep its doors open and continue growing cannabis while its sales licence was suspended.
"At that time, with operational expenses to cover and no sales revenue coming in, the company did look into a number of financing initiatives to keep the company in operation," wrote Morris, who would not comment on how those initiatives turned out.
"Our current focus (is) on reconnecting with stakeholders and re-establishing our sales channels, although we will take a measured approach to reintroduce our products into the marketplace."
Morris also said Bonify is no longer working with RavenQuest BioMed Inc. and its CEO George Robinson, who was brought on to serve as Bonify's acting CEO in December 2018 after Bonify fired three executives in the wake of its cannabis crisis.
Regulatory filings from RavenQuest — which, unlike Bonify, is publicly traded — say Bonify had signed a one-year agreement with the firm worth $1.5 million.
Solomon Israel is a full-time reporter for the Winnipeg Free Press and for two years, the lead writer for Free Press cannabis news site, The Leaf News. He continues to provide coverage of the cannabis beat while covering business in the city and province.