(TheNewswire)
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WINNIPEG, MB – TheNewswire - July 15, 2024 – DELTA 9 CANNABIS INC. (TSX: DN) (OTC: DLTNF) (“Delta 9” or the “Company”) announces today that it has obtained an initial order for creditor protection (the “Initial Order”) from the Court of King’s Bench of Alberta (the “Court”) under the Companies’ Creditors Arrangement Act (the “CCAA”). The Initial Order provides for a 10 day stay (the “Initial Stay”) of creditor claims and proceedings in respect of the Company 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 “Subsidiaries”).
Following consultation with its legal and financial advisors, the board of directors of Delta 9 determined that it is in the best interest of the Company and its Subsidiaries to obtain CCAA protection. The decision to undertake these actions was made after careful consideration of: (i) the cash and liquidity position of the Company; (ii) the amount of debt of the Company and the Company’s inability to repay such debt over the next twelve months, including payments to suppliers and trade creditors; (iii) the limited ability of the Company to raise further capital; and (iv) all available alternatives to an application for creditor protection. Aggressive actions by the Company’s creditors, namely demand notices by SNDL Inc. on May 21st and July 12th, as well as SNDL Inc.’s recent acquisition of all the Company’s senior secured debt, also played a material role in the decision to seek creditor protection.
In conjunction with the above, the Company announces that it has entered into a binding term sheet (the “Term Sheet”) with a proven industry partner to maximize the value of the Company for both shareholders and creditors. This Term Sheet will see 2759054 Ontario Inc. o/a The FIKA Company (the “Plan Sponsor”) act as plan sponsor to the CCAA proceedings whereby the Plan Sponsor proposes to acquire the cannabis retail store business and the logistics and distribution business of the Company, while facilitating a sale and investment solicitation process for the assets of the licensed cannabis production business (the “LP”) of the Company, in exchange for equity of the Plan Sponsor and the satisfaction of certain secured debt of the Company (the “Acquisition Transaction”). Pursuant to the Term Sheet, the Plan Sponsor has agreed to participate in and fund the costs of the CCAA proceedings through interim financing as well as to present one or more plans of compromise or arrangements (collectively, the “Plan”) to the creditors of the Company and its Subsidiaries to effect the Acquisition Transaction through the CCAA proceedings (the “Restructuring”).
“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, “We appreciate the hard work of all of Delta 9’s employees, management, executive, and board of directors over the past twelve years to help create what has been an incredible growth story for Delta 9. We look forward to working with FIKA through the restructuring process to unlock the value of Delta 9’s assets for stakeholders, and to create the next chapter of growth for Delta 9.”
The Initial Order includes, in addition to the Initial Stay and other items: (i) the appointment of Alvarez & Marsal Canada Inc. as the Court-appointed monitor (the “Monitor”) of the Company and the Subsidiaries; and (ii) an administration charge up to $350,000 over the assets of the Company and its Subsidiaries for the fees of the Monitor and its legal counsel and the legal counsel to the Company and its Subsidiaries, and a directors’ charge in the amount of $300,000. The Monitor has set up a website at: www.alvarezandmarsal.com/Delta9 where updates on the restructuring process, the Monitor’s reports to the Court, Court orders and other information will be posted as soon as they are available.
In accordance with the Term Sheet: (i) the Plan Sponsor will provide up to $16 million in interim financing (the “IF Loan”) to the Company and its Subsidiaries to fund the CCAA proceedings, including up to $3 million to fund the costs of the CCAA proceedings and up to $13 million to repay the secured obligations owing to SNDL Inc. (“SNDL”) in accordance with its senior secured second-lien convertible debenture dated March 30, 2022; (ii) the Plan Sponsor, if the Plan is approved in the CCAA proceedings, is proposing to issue voting common shares in the capital of the Plan Sponsor (“Sponsor Shares”) to the shareholders of the Company, with an aggregate value of $2 million; (iii) the Plan Sponsor, if the Plan is approved in the CCAA proceedings, is proposing to make an aggregate of $4 million in Sponsor Shares available to creditors electing to convert their debt into Sponsor Shares; (iv) the Plan Sponsor is also proposing to repay approximately $27,868,284 of additional secured debt of the Company and its Subsidiaries to SNDL, which were recently acquired by SNDL from Connect First and Servus Credit Union Ltd.; (v) the Plan Sponsor will fund any increase to the IF Loan, if necessary, to cover the costs of the CCAA proceedings; and (vi) the Plan Sponsor shall fund the Plan, including a distribution to unsecured creditors of at least $750,000.
A comeback application in respect of the relief granted pursuant to the Initial Order has been scheduled for July 24, 2024 (the “Comeback Application”). At the Comeback Application, the Company and its Subsidiaries anticipate seeking approval for: (i) the Term Sheet; (ii) the IF Loan Term Sheet (iii) a key employee retention plan (iv) the appointment of a chief restructuring officer (v) an increase to the administration charge and directors’ charge and (vi) the approval of a sales and investment solicitation process for a going concern transaction for the LP.
Management of the Company and its Subsidiaries will remain responsible for the day‐to‐day operations of the Company and its Subsidiaries throughout the Restructuring process, under the general oversight of the Monitor. Ongoing operations shall be supported by cash from operations with additional cash from the IF Loan, as required. In accordance with the Term Sheet, the Company shall engage a chief restructuring officer (“CRO”) selected by the Company and the Plan Sponsor to facilitate the Restructuring. The CRO shall be consulted prior to the Company or any Subsidiary making any material decision related to the Restructuring. All directors of the Company, other than John Arbuthnot and Bill Arbuthnot have resigned.
Management and the board of the Company believe that obtaining CCAA protection and entering into the Term Sheet with the Plan Sponsor is the best option available to the Company given its current financial position, careful consideration of all available alternatives, and will maximize value for all of its stakeholders, including secured and unsecured creditors, suppliers and shareholders. The Restructuring will allow the Company to continue its operations without interruption and will not result in any immediate significant changes to the Company’s operations.
MLT Aikins LLP is acting as legal counsel to the Company and its Subsidiaries in connection with the CCAA proceedings and the Acquisition Transaction.
It is anticipated that the Toronto Stock Exchange (the “TSX”) will place the Company under a delisting review as a result of the Initial Order and related matters and there can be no assurance as to the outcome of such review on the continued qualification of the Company’s shares for listing on the TSX.
About Delta 9 Cannabis Inc.
Delta 9 Cannabis Inc. is a vertically integrated
cannabis company focused on bringing the highest
quality cannabis products to market. The Company sells cannabis products through its wholesale
and retail sales channels and sells its cannabis grow pods to other businesses. Delta 9’s wholly-owned subsidiary, Delta 9 Bio-Tech Inc., is a licensed producer of medical and recreational cannabis and operates a 95,000 square foot production facility in Winnipeg, Manitoba, Canada. Delta 9 owns and operates a chain of retail stores under the Delta 9 Cannabis Store brand. Delta 9’s shares trade on the Toronto Stock Exchange under the symbol “DN” and on the OTC under the symbol “DLTNF”. For more information, please visit www.delta9.ca.
About The FIKA Company
The FIKA Company is a leading Canadian cannabis retailer operating 144 stores across the country under multiple banners. Known for providing exceptional service in a welcoming and intuitive store environment, FIKA’s portfolio of stores have become the premier destination for the modern cannabis consumer.
Disclaimer for Forward-Looking Information
Certain statements in this release are forward-looking statements, which reflect the expectations of management regarding the Company’s future business plans and other matters. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future. Such statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements, including with respect to any future decisions by the Court, the results of the Restructuring and any future operations of the Company, as well as all risk factors set forth in the annual information form of Delta 9 dated March 28, 2024 which has been filed on SEDAR+. No assurance can be given that any of the events anticipated by the forward-looking statements will occur or, if they do occur, what benefits the Company will obtain from them. Readers are urged to consider these factors carefully in evaluating the forward-looking statements contained in this news release and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by these cautionary statements. These forward-looking statements are made as of the date hereof and the Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable securities laws.
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