Humble Fume, one of the largest cannabis distributors in Canada, has filed for creditor protection after facing financial difficulties and legal disputes with some of its suppliers and customers. The company, which operates in eight provinces and territories, has been struggling to pay its debts and maintain its cash flow amid the challenges of the cannabis industry.
The reasons behind Humble Fume’s troubles
Humble Fume was founded in 2016 as a cannabis accessories distributor, but later expanded into the distribution of cannabis products from licensed producers and processors. The company claims to have over 4,000 retail partners and more than 200 brands in its portfolio. However, the company has also faced several problems that have affected its financial performance and reputation.
Some of the reasons behind Humble Fume’s troubles are:
- The impact of the COVID-19 pandemic. The pandemic has disrupted the supply chain and the demand for cannabis products, as well as the operations of the retail stores. Humble Fume has experienced delays in receiving payments from its customers, as well as increased costs for transportation, warehousing, and inventory management.
- The oversupply and price erosion of the cannabis market. The cannabis market in Canada has been saturated with products from various sources, leading to a decline in the prices and margins for the distributors and the retailers. Humble Fume has also faced competition from other distributors, as well as from the direct sales channels of some of its suppliers.
- The legal disputes with some of its suppliers and customers. Humble Fume has been involved in several lawsuits and arbitration cases with some of its suppliers and customers over the terms and conditions of their contracts, the quality and quantity of the products, and the payments and returns. Some of these disputes have resulted in the termination or suspension of the business relationships, as well as the seizure or withholding of the products or the funds.
The creditor protection process and the future plans of Humble Fume
Humble Fume has filed for creditor protection under the Companies’ Creditors Arrangement Act (CCAA) on December 23, 2023, with the Ontario Superior Court of Justice. The CCAA is a federal law that allows insolvent companies to restructure their debts and operations under the supervision of the court and a monitor. Humble Fume has obtained an initial order from the court that grants it a stay of proceedings until January 21, 2024, which means that its creditors cannot take any legal action against it during this period.
Humble Fume has also appointed KSV Advisory Inc. as the monitor, which is an independent firm that will oversee the creditor protection process and report to the court and the creditors. Humble Fume has also secured interim financing of up to $10 million from its existing lender, Bridging Finance Inc., which will provide it with the necessary liquidity to continue its operations and pay its employees and critical suppliers.
Humble Fume has stated that it intends to use the creditor protection process to restructure its business and financial affairs, and to explore various strategic alternatives, including the sale of some or all of its assets, the refinancing of its debt, or the recapitalization of its equity. The company has also expressed its commitment to work with its stakeholders to achieve a successful outcome that will preserve its value and position in the cannabis industry.
The implications of Humble Fume’s creditor protection for the cannabis industry
Humble Fume’s creditor protection is the latest sign of the difficulties and uncertainties that the cannabis industry in Canada is facing. The industry has been undergoing a consolidation and rationalization process, as many companies have been forced to cut costs, reduce staff, sell assets, or seek mergers and acquisitions to survive and compete in the market.
Humble Fume’s creditor protection also has implications for its suppliers, customers, and employees, as well as for the regulators and the tax authorities. Some of the implications are:
- The suppliers. Humble Fume owes about $46 million to its trade creditors, most of which are cannabis producers and processors that have supplied products to the company. These suppliers may face losses or delays in recovering their debts, as well as disruptions in their distribution channels and market access. Some of these suppliers may also have to deal with the legal disputes that Humble Fume has initiated or responded to.
- The customers. Humble Fume serves over 4,000 retail partners across Canada, including private and public retailers, as well as online platforms and medical clinics. These customers may face shortages or delays in receiving the products that they have ordered or paid for, as well as changes in the prices and terms of their contracts. Some of these customers may also have to deal with the legal disputes that Humble Fume has initiated or responded to.
- The employees. Humble Fume employs about 150 people, mostly in its headquarters in Mississauga, Ontario, and its warehouses in Ontario, Alberta, and British Columbia. These employees may face uncertainty or insecurity about their jobs and incomes, as well as changes in their roles and responsibilities. Humble Fume has stated that it will continue to pay its employees during the creditor protection process, and that it will try to minimize the impact on its workforce.
- The regulators and the tax authorities. Humble Fume is subject to the regulations and the taxes of the federal, provincial, and municipal governments that govern the cannabis industry in Canada. These regulators and tax authorities may face challenges or risks in enforcing their rules and collecting their revenues, as well as in ensuring the compliance and the safety of the products and the operations of Humble Fume and its stakeholders.
Humble Fume’s creditor protection is a significant event for the cannabis industry in Canada, as it reflects the challenges and the opportunities that the industry is facing. Humble Fume’s fate will depend on its ability to restructure its debts and operations, and to find a viable solution that will satisfy its creditors and stakeholders. Humble Fume’s future will also affect the future of the cannabis industry, as it will influence the market dynamics and the competitive landscape of the sector.
