The company behind a new Prairie processing plant extracting plant-based proteins from peas and canola has landed in receivership, in the high eight figures’ debt to its secured lenders.
PricewaterhouseCoopers (PwC) on Wednesday announced it’s the receiver for both Merit Functional Foods Corp. and the numbered company that owns Merit’s processing plant and property in Winnipeg’s CentrePort industrial park, following an order granted Wednesday in Court of King’s Bench in Winnipeg.
Federal lending agencies Export Development Canada (EDC) and Farm Credit Canada (FCC) filed Feb. 24 for the order, citing principal and interest owed to them at about $58.5 million and $36.5 million respectively.
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The two lenders, in their filing, said they expect Merit to run out of operating cash by around Friday or Saturday this week, at which time it would “no longer be able (to) operate its business as a going concern.”
A joint-venture firm with major shareholders including Vancouver plant-based protein firm Burcon NutraScience, major U.S. agrifood firm Bunge and former executives of Hemp Oil Canada, Merit “began suffering significant cash flow shortages” between January and September last year, EDC and FCC said.
Since September, the two lenders said, Merit has been conducting an out-of-court sales process aiming to sell both its business and the Winnipeg plant — but that process “did not generate any formal offers” for the lenders’ consideration.
Burcon, which holds a 31.6 per cent stake in Merit, in a separate statement Tuesday had disclosed EDC and FCC’s plans to seek a receiver. Burcon also said it “intends to continue its discussions with Merit’s lenders… in order to seek a potential funding solution for Merit’s business.”
Burcon CEO Kip Underwood, in a Feb. 8 letter to that company’s shareholders, said Merit’s stakeholders in September had put up loans of $3 million to “address Merit’s anticipated liquidity requirements as it continued to ramp up its production and sales.”
Merit late last year sought “to identify a new strategic investor for its business,” he wrote, adding that “to date, no funding has been received from a new investor.”
Merit, for the past six months, “has made significant progress,” he wrote, improving daily production performance and increasing its year-over-year sales, while customers say Merit’s products are “best-in-class.”
However, he added, “unfortunately, the overall financial performance of the business has fallen short of expectations and led to the current cash flow concerns.”
Burcon, he wrote Feb. 8, had been “exploring interim financing for Merit while working on a more specific, longer-term funding solution” and was “prepared to fund ongoing operating expenses and debottlenecking capital with support from our largest Burcon shareholder to back the overall project.”
Burcon on Feb. 14 released results for its third quarter ending Dec. 31, showing Merit’s total revenue for the quarter at $3 million, up 146 per cent from the year-earlier period. Burcon for the quarter booked impairment charges of $12.3 million related to its investment in, and loan to, Merit.
Underwood, in his letter Feb. 8, said Burcon has “real concerns about Merit’s financial situation and viability” and “recognize(s) the news of Merit Functional Foods’ situation may be a surprise.”
However, he stressed, if its funding plans for Merit are successful, “Burcon could have, for the first time in its history, a chance to own its destiny… While there is risk in our current path, we believe this also presents Burcon with a significant opportunity.”
Built starting in 2019, Merit’s 94,000-square-foot plant opened in early 2021 and began accepting canola and yellow peas to process product lines such as Puratein canola proteins, Peazac pea proteins, and MeritPro protein blends using Burcon’s protein extraction technology.
In 2021 Merit projected it would be able to eventually expand to take up to 100,000 tonnes of canola and peas per year.
Its more recent products have included Peazazz C, a pea protein with a “smooth, grit-free texture” for ready-to-drink beverages, launched last July, and Organic Peazazz C 850, a certified organic version, last December for use in beverages, protein powders and protein bars.
EDC and FCC were members of a consortium of lenders including Agricultural and Agri-Food Canada and CIBC providing Merit with $95 million in debt financing starting in 2020. AAFC’s contribution came in the form of a 10-year, interest-free $10 million loan from the department’s AgriInnovate program.
Merit that year also picked up $9.5 million in support from the Protein Industries Canada supercluster to back product development. — Glacier FarmMedia Network
CORRECTION, March 2, 2023: The notice of motion filed Feb. 24 by EDC and FCC states Merit was expected to run out of operating cash “on or around March 3-4, 2023.” An earlier version of this article incorrectly referred to those dates as “Thursday or Friday.”
