MAYFIELD -- GenCanna announced Thursday that it has filed a petition for voluntary Chapter 11 bankruptcy. The move allows the industrial hemp company, which had been constructing a processing facility north of Mayfield, to continue its business operations while reorganizing its existing debt or even potentially sell.
"We are taking this action in order to position our business for success in a highly dynamic and rapidly evolving industry," CEO Matty Mangone-Miranda said in the company release on its Facebook page.
"While this is certainly not the outcome we desired, the bankruptcy process gives us the ability to move forward in a way that allows us to best continue operations and serve customers as we work through our reorganization, resolve an outstanding legal dispute involving our western Kentucky facility, navigate an uncertain regulatory environment and adjust our annual operating costs to better match the landscape," he added.
Last week, lawyers for GenCanna and several contractors related to the Mayfield construction site appeared before Graves Circuit Court Judge Tim Stark to address a civil case involving GenCanna and utility contractor Murtco Inc. of Paducah. At that time, it was revealed three companies had filed an involuntary bankruptcy petition in U.S. Bankruptcy Court for Kentucky's Eastern District.
GenCanna, which is based in Winchester, had two weeks to respond to the involuntary bankruptcy.
The announcement Thursday stated the company has obtained approximately $10 million in post-petition debtor-in-possession financing from its senior lender, which was not listed. Pending court approval, that would allow GenCanna to maintain its operations through the Chapter 11 process.
Huron Consulting Services LLC has been hired as an operational adviser, along with Jefferies LLC as financial adviser, and the firms of Benesch Friedlander Coplan and Aronoff LLP and Dentons Bingham Greenebaum LLP as GenCanna's legal counsel with the Chapter 11 proceeding.
First District U.S. Rep. James Comer said he was disappointed when he heard the announcement, though it didn't come as a surprise.
"When they walked away from that plant in Mayfield, I knew it probably wasn't going to end well," he said during a phone call from Washington Thursday afternoon. "It's a black eye for the hemp industry, and it's a black eye for agriculture in Kentucky."
It was nearly one year ago this month when the company finalized a land deal in Mayfield for a then-announced $40 million hemp processing facility. The company contracted with local farmers to grow hemp, following the 2018 Farm Bill, and companies to build the facility with a weigh and testing station, holding and drying facilities located off U.S. 45 North.
The plant was to be ready for the initial harvest of hemp biomass in fall 2019, however construction was delayed as unpaid contractors filed millions of dollars of liens. The locally harvested product was diverted to the company's Clark County headquarters, which also suffered a fire in November.
Comer said he had heard from contractors about the financial issues, but said most of the farmers contracted with GenCanna were current on their payments or maybe owed one or two more payments.
"The question is, will they ever receive that payment," he said.
Comer, who served previously as the Kentucky Commissioner of Agriculture, said while the state of hemp in Kentucky may not be in a good spot, the product nationwide is strong. He said the state Department of Agriculture should focus more on hemp fiber products, and not on CBD oils and products.
"I envisioned companies like Hempwood in Murray making hardwood flooring. I envisioned companies making parts for automobiles, I envisioned what Murray State is doing, researching using hemp for livestock feed; companies in western Kentucky using hemp for livestock bedding," he said. "Over the last two or three years after I left office as commissioner of agriculture, all these CBD companies rolled into town. That always concerned me.
"The Kentucky Department of Agriculture is going to have to really examine the process they go through in granting licenses to processors," Comer added. "They need to do better job of making sure the processors have enough money in escrow to be able to pay farmers for all hemp they've contracted. It doesn't appear to me they're doing that right now."