Tokyo Smoke to Close 29 Stores Amid Restructuring Efforts

Tokyo Smoke, a prominent cannabis retailer, has announced the closure of 29 of its stores across the country as it seeks creditor protection under the Companies' Creditors Arrangement Act (CCAA).

The announcement was made on Wednesday, detailing that despite the closures, 167 locations in Ontario, Manitoba, Saskatchewan, and Newfoundland and Labrador will continue to operate during the restructuring process.

According to the retailer, these measures are necessary to realign its operations with the changing cannabis market and regulatory conditions. The cannabis sector has seen significant shifts, particularly with the increase in the number of retail licenses in various provinces.

In Ontario, the cannabis retail license count has increased from less than 100 to over 1,600, leading to intense market saturation and downward pressure on prices due to the lack of product differentiation among retailers.

As outlined in court filings, the book value of Tokyo Smoke’s liabilities exceeds its assets by approximately $89.1 million. As of June 30, 2024, the company reported assets with a book value of roughly $148.2 million against liabilities amounting to approximately $237.4 million.

The company has been operating at a loss and has relied on financing from related parties and third-party lenders to meet its capital needs. For the fiscal year ending June 30, 2024, Tokyo Smoke posted a net loss of $29.3 million, raising concerns about its ability to meet financial obligations without additional funding.

The immediate focus for Tokyo Smoke during this restructuring will involve negotiating lease amendments with landlords and terminating other contractual agreements to reduce overhead costs.