In a move that will shock very few, Aleafia Health (TSX: AH) has filed for creditor protection following its failed attempt to merge with Red White & Bloom (CSE: RWB).
The company and its numerous subsidiaries have been granted an order under the Companies’ Creditors Arrangement Act from the Ontario Superior Court of Justice. The filing for creditor protection follows the company breaching covenants under a senior secured loan agreement.
The loan, which was assigned to Red White & Bloom by NE SPC II LP, has resulted in demand letters being issued by RWB on July 24, with the US cannabis operator electing to not waive the outstanding breaches of the loan agreement. As a result of the demand agreement, combined with the challenges that have hit the cannabis industry and the failure of the company to merge with RWB, the board determined it was sensible to seek creditor protection.
As a result, the company has entered into a debtor-in-possession loan agreement with RWB, which will see $6.6 million loaned to Aleafia to meet short-term working capital requirements. Aleafia has indicated it intends to seek court approval for a sale and investment solicitation process for its business as well as its assets.
The company meanwhile has been halted by the TSX and is subject to a delisting review as a result of the filing.
The filing for creditor protection marks the end of yet another Canadian cannabis story. At its height, Aleafia was worth in excess of $600 million, and notably acquired Emblem Cannabis in 2019 in an all-stock deal valued at $173 million at the time of announcement. The transaction also brought the Canabo Medical and GrowWise Health banners under the firms ownership, which consisted of 40 medical clinics and education centres across the country.
Information for this briefing was found via Sedar, Seeking Alpha, and Aleafia Health. The author has no affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
