Cannabis Giant Chalice Is Hemorrhaging Value, and Could Escape Its Creditors

Want to measure just how far the Oregon cannabis industry has fallen? Consider the fate of publicly traded Canadian company Chalice Brands.

The company, which until recently traded on the Canadian Securities Exchange, holds most of its assets in Oregon, including licenses for 16 dispensaries, of which 10 are currently operational. In December 2018, its market cap was $7.6 billion. Today, the stock is worthless.

In May, Chalice Brands sued its Oregon subsidiary companies in Oregon Circuit Court and entered into receivership—essentially appointing a financial babysitter to guide the company to a peaceful death.

The aim: to sell the company for as much as it can get, repay as many of its creditors as possible, and exit the state with little fanfare.

WW reported earlier this year that Chalice owed tens of thousands of dollars to small Oregon cannabis farms. Chalice’s entrance into receivership leaves those farms—and other small cannabis businesses—with little recourse to recover the money they’re owed.

What’s more, just last week the receiver presented a sale agreement to the judge. The bid: $3 million for nearly all of Chalice’s assets. That price, for 22 Oregon cannabis licenses, struck some in the industry as a terrifying omen—and others as a sweetheart deal.

The bidder? A Delaware LLC whose members include William Simpson, the founder of Chalice and an adviser to its board, and Gary Zipfel, a Chalice board member. Both are major shareholders in the company, according to recent company statements.

Creditors who believe Chalice owes them money are now inside a two-week window in which they can ask the judge to reject the purchase. The judge will then rule on the sale. If it goes through, the $3 million would go toward paying the receiver, attorneys, taxes and any other secured debts it could cover. Chalice’s remaining debts would be wiped out.

Chalice declined to answer WW’s questions, including how much it believes it owes in total to creditors. “Given the court has yet to approve the transaction,” says Scott Secord, the company’s chief restructuring officer, “we don’t feel it is appropriate to make any comment.”

Bobsled Extracts, a processing company, is owed more than $400,000 by Chalice for a processing machine it purchased in 2021, according to its CEO, Stephen Sweeney. He’s outraged at the proposed sale.

“You’re giving the entire pie back to board members, debt free?” Sweeney says. “I am absolutely going to fight this.”

Eight years ago, Chalice was one of Oregon’s biggest cannabis success stories. Its founder, Simpson, was a young, handsome businessman from West Linn who said cannabis had helped him escape a potentially dark path of prescription pill abuse.

In 2017, Simpson sold the company to the publicly traded, Canadian-based cannabis company Golden Leaf for $19 million and 83 million shares in the company. The company renamed itself Chalice Brands in 2021. While its headquarters are technically in Toronto, nearly all of its operations are still run from its Portland offices.

Chalice continued to purchase brands and dispensaries in 2020 and 2021, aided by a pandemic-year boost in cannabis sales. But cracks started to show in May 2022 when the Canadian Securities Exchange suspended Chalice from trading because it hadn’t filed its quarterly financials.

Then, last fall, a number of Chalice’s planned acquisitions fell through. Turnover in Chalice management and on its board of directors was constant.

When Chalice finally decided to throw in the towel this spring, its May court filings in Oregon Circuit Court laid out a desperate situation: Chalice Brands owed an undisclosed—but very large—amount of money to cannabis companies it had purchased product from, landlords, investors, companies from which it had purchased dispensaries, and tax authorities.

Chalice’s CEO at the time, Jeff Yapp, told WW that the receivership was necessary to “give it time to restructure and clean up its balance sheet, and potentially find parties to buy it.” Much of the money Chalice Brands borrowed to fund its Oregon operations—upwards of $35 million that the parent company claims its Oregon subsidiaries still owe, according to receivership documents—is due to institutional lenders and investors in Canada and the United States.

Only a number of Chalice’s creditors are secured lenders, meaning under normal circumstances they have material collateral they can seize if Chalice fails to pay. The smaller farms that are owed money are unsecured creditors—they have little recourse to recoup what’s owed to them.

Now that Chalice is under a receivership, all efforts to go after Chalice for unpaid bills are frozen.

Cannabis lawyer Matt Goldberg, whose law firm colleagues represent one of the few secured creditors in the case, says receivership is a cannabis company’s closest option to a bankruptcy, which it’s ineligible to declare because cannabis is still federally illegal.

“It’s the only viable alternative,” Goldberg says. “If there’s no receivership, everyone continues to go after what they’re owed. With a receivership, all of that gets put on hold. It’s supposed to be a more civilized, rational way of making sure that creditors get paid.”

But Goldberg says that rarely happens: “The unsecured creditors get nothing. The shareholders get nothing.”

Chalice has plenty of unsecured creditors.

A small Oregon processing company, which asked to remain unnamed, provided outstanding invoices for products Chalice purchased last year that amounted to more than $13,000. It’s one of Chalice’s unsecured creditors.

Bobsled Extracts sold an extraction machine to Chalice in 2021 for $315,000. The agreement: Chalice would pay a little over $8,000 a month. But a year ago, Bobsled CEO Stephen Sweeney says, Chalice fell behind on its payments.

Wyld, an edible maker, is also owed money. Its in-house lawyer, Gabe Parton Lee, declined to specify how much the firm is owed, but said it’s “a lot more money than we’d like to lose.”

Creditors now have a two-week window in which they can ask the judge to reject the sale. That window opened earlier this month when the receiver, Kenneth Eiler, filed a motion with the court to approve a bid from a Delaware LLC named APCO for $3 million.

A purchase agreement included in court filings reveals who’s behind the bid by APCO: Simpson and Zipfel.

Sweeney of Bobsled—one of the last remaining secured creditors that hasn’t agreed to settle with Chalice—says he plans to fight the sale to APCO.

“I am absolutely going to fight this. I’m going to go full-on lawsuit,” Sweeney says. “And I’m probably going to lose.”

Based on August court filings, it would appear Chalice has whittled down the resolve of at least two secured creditors to oppose the sale. (The receiver is fighting the “validity” of a number of other claims—including Bobsled’s, according to filings.) One is Acreage Holdings, which sold its Cannabliss dispensaries to Chalice in 2021 for $6.5 million. The other is Homegrown, a company that Chalice bought four dispensaries from in 2021 and to whom it still owes $1.8 million.

Eiler wrote in Aug. 11 filings that he had reached “tentative agreements” with Acreage and Homegrown to be paid $150,000 apiece if they didn’t oppose the sale to APCO—pennies on the dollar of what they’re actually owed.

Simpson, in a text to WW, says he’s “excited to watch the legal process move forward” and is “hopeful to start working with all the amazing Oregon brands we know and love.” He now lives in Hawaii; Zipfel lives in Illinois.