Auxly Cannabis (TSXV: XLY) is potentially only moments away from finally securing the assets of Curative Cannabis, barring any unexpected further developments. The firm began the process in September to secure the assets of Curative following the firms inability to pay secured debts that had come due. A final hearing tomorrow is expected to result in the firm finally acquiring the assets from the trouble pre-license cannabis operator.
The Deep Dive has covered the saga between Auxly Cannabis and Curative Cannabis extensively, beginning back in September when Auxly first moved to secure the assets. At the time, Auxly was owed $16.1 million in relation to delinquent debts for the construction of Curative’s facility in Chatham, Ontario. Shortly after our initial coverage, the principals of Curative objected to Auxly’s move to secure their equity within the grower.
The objection to foreclosure was on the basis of the assets of the private company being valued in excess of the funds owed to Auxly, which had then climbed to $17.5 million as a result of interest and the ongoing payment of construction costs by Auxly to protect the value of the asset. Additionally, a third party stepped in as well to indicate that they have priority over Auxly’s secured debt due to prior issued funding.
Several developments have occurred since we last reported on the matter. First and foremost, a forbearance agreement was entered into among Auxly Cannabis, Curative Cannabis, and the two executives David Shpilt and Scott Fitzgerald. Forbearance, in layman terms, means to “hold back,” in this sense meaning to push back the date of foreclosure. As a condition of entering the agreement, both principals rescinded their objection to the foreclosure, which would occur if they failed to secure additional financing.
With respect to the valuation discrepancies between Auxly’s claims and that of the principals, Auxly has since obtained a third party valuation that identifies that the shares being foreclosed on, 95 in total, are fairly valued at less than the total debt owed to Auxly. Auxly has also deemed that the priority of the third parties debts is invalid based on it being unclear whom exactly they transferred funds to, as bank documents provided indicate that the funds were transferred to other third party bank accounts.
The forbearance agreement was entered into as gesture to allow Curative and its principals additional time to secure financing to cover the debt owed to Auxly, rather than going through the foreclosure process. While Shpilt and Fitzgerald managed to find a source of financing that was suitable to Auxly, the source of funding failed to transfer the required funds to an escrow agent by the agreed upon time of November 15.
The hearing was subsequently pushed from November 18 to tomorrow, November 27, to allow final time for the funding to be secured, with all current evidence pointing to funding not being secured. Curative Cannabis has defaulted on the forbearance agreement, and as a result, Auxly will be proceeding with the foreclosure process at tomorrows hearing.
The result, is that Auxly will be seeking that an order be signed by Justice Dietrich enforcing the foreclosure of Curative’s share collateral on behalf of Auxly, with all assets being transferred to Auxly Cannabis free and clear of any other debts.
Auxly Cannabis is currently owed $21.2 million by Curative Cannabis. Upon securing the share collateral of 95 shares currently held by the principals of Curative, Auxly will be in control of all 125 shares outstanding of Curative Cannabis.
The final hearing is slated to occur tomorrow, November 27, 2019, at 10:00 AM in Toronto.
Auxly Cannabis last traded at $0.66 on the TSX Venture.
Information for this briefing was found via Sedar, Farber & Partners Inc, and Auxly Cannabis Group Inc. The author is no position in this security and 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.
As the founder of The Deep Dive, Jay is focused on all aspects of the firm. This includes operations, as well as acting as the primary writer for The Deep Dive’s stock analysis. In addition to The Deep Dive, Jay performs freelance writing for a number of firms and has been published on Stockhouse.com and CannaInvestor Magazine among others.