Aleafia Health Inc. (TSX: AH) (OTCQB: ALEAF) has obtained creditor protection in an effort to restructure its business and financial affairs.
The move –announced Tuesday– comes in the wake of a series of financial pressures and industry challenges that have significantly impacted the company’s operations.
Aleafia Health and its Canadian subsidiaries have been granted an order from the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (CCAA). This order will allow the company to restructure its business and financial affairs, providing a lifeline amid its current financial difficulties.
The company’s financial struggles have been compounded by the termination of a binding letter agreement with Red White & Bloom Brands Inc. (RWB) regarding a proposed business combination transaction. The termination of this agreement has added to the financial pressures Aleafia is currently facing.
Further complicating matters, Aleafia is in breach of certain covenants under the Aleafia Senior Secured Loan Agreement. RWB, which has not waived any outstanding breaches, has issued demand letters and notices to enforce security, adding to Aleafia’s financial woes.
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The decision to seek creditor protection under the CCAA was made after careful consideration of all available alternatives and consultation with legal and financial advisors. The company believes that this move is in the best interest of the Aleafia Group and its stakeholders.
The restructuring process is expected to include potential transactions to maximize the value of its assets for the benefit of its creditors and other stakeholders. This may involve the sale of all or substantially all of the business or assets of the Aleafia Group through a court-supervised sale process.
To fund the CCAA proceedings and other short-term working capital requirements, Aleafia has executed a debtor-in-possession (DIP) term sheet with RWB. However, the continued availability of the DIP Loan is conditional on certain conditions being satisfied, including the Initial Order remaining in effect.
As a result of the CCAA filing, the Toronto Stock Exchange is expected to halt trading of the Corporation’s common shares and place the Corporation under delisting review. The outcome of this review and the continued qualification for listing on the TSX remain uncertain.
Aleafia Health is a federally licensed Canadian cannabis company offering cannabis products in Canadian adult-use and medical markets and in select international markets.
Other Canadian cannabis companies have filed for protection this year, including the cannabis retailer Fire & Flower Holdings Corp. which filed for granted creditor protection because of high losses every year since operations started.
The Phoena Group also filed for creditor protection under the CCAA as well as the holding firm Chalice Brands.
