Delta 9 Cannabis (TSX: DN) has entered creditor protection under the Companies’ Creditors Arrangement Act (CCAA) after acknowledging being in default on certain obligations, particularly following the demand letter received from SNDL (NASDAQ: SNDL), a major creditor, demanding repayment of $27.9 million in credit facilities and a $10 million convertible debenture.
In response to the financial crisis, Delta 9 obtained an initial order for creditor protection from the Court of King’s Bench of Alberta. The court order includes a 10-day stay on creditor claims, allowing the company time to devise a restructuring plan. This protection extends to Delta 9 and its subsidiaries: Delta 9 Logistics Inc., Delta 9 Bio-Tech Inc., Delta 9 Lifestyle Cannabis Clinic Inc., and Delta 9 Cannabis Store Inc.
The court-appointed monitor, Alvarez & Marsal Canada Inc., will oversee the restructuring process. A comprehensive list of creditors shows significant amounts owed to various entities, with SNDL Inc. being the largest creditor, owed approximately $38.7 million. Other notable creditors include Canada Revenue Agency, owed $7.6 million in excise taxes, and various suppliers and service providers. The total amount owed to creditors stands at an alarming $133.2 million.
To stabilize its operations, Delta 9 has entered into a binding term sheet with 2759054 Ontario Inc., operating as The FIKA Company. FIKA, a well-established cannabis retailer, will act as the plan sponsor during the CCAA proceedings.
“We are pleased to have entered into the Plan Sponsor Term Sheet with FIKA in a series of transactions which we believe will maximize value for our stakeholders, shareholders, and creditors,” said John Arbuthnot, CEO of Delta 9.
Under the agreement, FIKA will provide up to $16 million in interim financing, including $3 million to cover CCAA proceeding costs and $13 million to repay secured obligations to SNDL. The plan also involves FIKA acquiring Delta 9’s cannabis retail and logistics businesses while facilitating the sale of its licensed cannabis production assets.
Additionally, FIKA proposes issuing voting common shares to Delta 9 shareholders and making shares available to creditors who convert their debt into equity. A distribution of at least $750,000 will be made to unsecured creditors.
Despite the financial challenges, Delta 9 plans to continue its operations uninterrupted, supported by ongoing cash flows and interim financing from FIKA. The company aims to navigate the restructuring process under the supervision of the court-appointed monitor and a chief restructuring officer.
Delta 9 Cannabis last traded at $0.01 on the TSX.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or 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.
