In one of the more unexpected match-ups in the cannabis space, it was announced yesterday that Canadian operator Aleafia Health (TSX: AH) would be acquired by US operator Red White & Bloom Brands (CSE: RWB), with a binding letter agreement currently in place.
“The intended acquisition of Aleafia expands our footprint to the largest federally legal cannabis market globally. Combining our award-winning brands and IP with Aleafia’s proven cultivation, manufacturing, and distribution capabilities, creates one of the most dynamic cross border companies in the industry. We continue to focus on delivering significant value to our shareholders and believe this transaction aligns with that commitment,” commented RWB’s CEO Brad Rogers
While Rogers spoke at length about the positive aspects of the transaction, the deal appears to be geared towards meeting creditor demands. Aleafia was in default of a loan issued in December 2021, with the company as of late delaying its repayment in one week intervals. That loan has now been assigned to RWB.
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As part of the transaction, RWB will also provide Aleafia with a credit facility to the tune of $17.5 million within the next 30 days as a means of keeping the operation afloat. A new credit facility for $30 million will also be taken out by RWB in an effort to fund Aleafia, including the repayment of $6.0 million in outstanding notes and to cover the reassigned debt of Aleafia.
READ: Aleafia Health Begins Strategic Review Process As Debt Comes Due
Part of those credit facilities will be funded by Royal Group Resources in the amount of $14 million, with Royal Group being a creditor of both RWB and Aleafia currently.
On a combined basis, the new entity is expected to have trailing revenue of C$138 million, with the company servicing 3,000 retail locations in North America via its current distribution. Synergies of $10 million annually meanwhile are expected to be found as a result of the pairing.
Shareholders meanwhile can expect to receive 0.35 of a share of RWB for each Aleafia share held. The figure equates to $0.0245 in value per share of Aleafia held, meaning no premium is being ascribed to the Canadian operator. For those that anticipated creditor protection for the firm in the coming days however, this appears to be a more positive scenario.
The transaction remains subject to the firms entering a definitive arrangement.
Aleafia Health last traded at $0.025 on the TSX.
Information for this briefing was found via Sedar 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.
