Cannabis retailer Tokyo Smoke has launched its stalking-horse sale process as part of an effort to exist bankruptcy protection.

Parent firm T.S. Investments has agreed to subscribe for all of Toronto Smoke’s issued and outstanding shares for $77 million. That price is intended to be a starting point as potential buyers now enter the sale process, which began Friday.

Toronto-based Tokyo Smoke has obtained court approval to start a sale and investment solicitation process on Friday. Interested parties will have until October 21 to submit bids. The bidding process will ended October 21.

In the second phase of the process, binding agreements will be sought from compliant bidders, according to a Tokyo Smoke news release.

The sales effort comes after Tokyo Smoke announced plans to close 29 stores and seek bankruptcy protection in accordance with the Canadian Companies’ Creditor Arrangement Act.

Tokyo Smoke plans to continue to operate 167 recreational and medical pot shops in Ontario, Manitoba, Saskatchewan and Newfoundland and Labrador, the company said.

The company had approximately $102.3 million of debt as of June 30.

Toronto-based Alvarez & Marsal Canada is acting as the court-appointed monitor in accordance with the CCAA. The monitor attributed the urgent need for relief to a saturation of the market in Ontario after the province allowed an unlimited number of cannabis retail licenses and store authorizations.

The number of Ontario cannabis licenses has ballooned to 1,600 from 100 in 2019 after pot was legalized in the province, said Alvarez & Marsal in a court filing. Also, an oversupply has resulted because Ontario’s cannabis is sourced from one regulated wholesaler that sells the same product to all retailers, said the monitor.

Alvarez & Marsal also cited a thriving grey market, which has removed revenues and profits from legitimate operators, and the effects of the COVID-19 pandemic as causes of Tokyo Smoke’s financial woes. (A grey market is defined as a quasi-legal market.)

TS Investments has agreed to provide $8 million of debtor-in-possession financing in the form of a non-revolving loan facility, including an initial advance of $3.3 million, during the court proceedings.

Tokyo Smoke intends to negotiate consensual lease amendments with landlords for its remaining stores.

The company is owned by OEG Retail Cannabis, a holding of Edmonton Oilers owner Daryl Katz, according to the Canadian Press.

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