The Ontario Superior Court of Justice granted an order under the Companies’ Creditors Arrangement Act for Canadian cannabis company Aleafia Health and certain of its Canadian subsidiaries, including Emblem, Emblem Cannabis, Emblem Realty, Growwise Health, Canabo Medical, Aleafia Inc., Aleafia Farms Aleafia Brands, Aleafia Retail, 2672533 Ontario and 2676063 Ontario, to restructure their collective business and financial affairs.
On July 14, Aleafia announced the mutual termination of the binding letter agreement entered into between Red White & Bloom Brands (RWB) and Aleafia on June 6 in respect to a proposed business combination transaction. In addition, pursuant to an assignment of indebtedness and security dated June 6, NE SPC II LP assigned to RWB all indebtedness of Aleafia and certain of its affiliates in connection with a senior secured loan agreement Aleafia entered in December 2021 and amended multiple times throughout 2022 and 2023. Aleafia is currently in breach of certain covenants under the loan agreement and RWB has not waived any outstanding breaches. On July 24, RWB issued demand letters and notices to enforce security under Section 244 of the Bankruptcy and Insolvency Act (Canada).
In light of, among other things, financial pressures resulting from obligations owing to creditors (including under its senior secured loan agreement), challenging factors impacting the cannabis industry and the termination of the letter agreement with RWB, and after careful consideration of all available alternatives and consultation with legal and financial advisors, the board of directors of each member of the Aleafia group determined that it was in the best interest of Aleafia and its stakeholders to seek creditor protection under the CCAA.
In order to fund the CCAA proceedings and other short-term working capital requirements, Aleafia executed a DIP term sheet with RWB pursuant to which RWB has agreed to advance C$6.6 million ($5 million) in debtor-in-possession financing to Aleafia. The continued availability of the DIP loan is conditional on, among other things, certain conditions being satisfied, including the initial court order remaining in effect. The DIP loan is anticipated to fund the operations of Aleafia and its subsidiaries in the ordinary course through the duration of the CCAA proceedings.
The order from the court provides for, among other things: (i) a stay of proceedings in favor of Aleafia and its subsidiaries; (ii) the approval of the debtor-in-possession financing in accordance with the DIP term sheet; and (iii) the appointment of KSV Restructuring as monitor of the Aleafia group.
The stay of proceedings and DIP financing will provide Aleafia and its subsidiaries with the time and stability required to consider potential restructuring transactions and maximize the value of its assets for the benefit of its creditors and other stakeholders. This may include the sale of all or substantially all of the business or assets of Aleafia and its subsidiaries through a court-supervised sale process. In that regard, Aleafia intends to seek court approval to launch a sale and investment solicitation process (SISP) for its business and assets promptly following the initial order. The SISP is expected to be administered by KSV Restructuring with the assistance Aleafia and its subsidiaries.
It is anticipated that the Toronto Stock Exchange will halt trading of Aleafia’s common shares and, as a result of the company having filed for protection under the CCAA, will place the corporation under delisting review.
