A group of investors are set to take a majority stake in embattled producer CannTrust Holdings Inc., which should allow it to exit its creditor protection and resume public trading.
At the end of the day Friday, the firm said it had secured new investment partners, led by Marshall Fields International B.V., a Netherlands-based private equity firm and subsidiary of Kenzoll B.V.
The investors, which include two members of CannTrust’s management, are investing $11.2 million to acquire a 90-per-cent stake in CannTrust Equity, a subsidiary of CannTrust Holdings that holds the firm’s licences through its operating division, CannTrust Inc.
Shareholders will retain 10 per cent of the outstanding common shares through CannTrust Holdings.
The partners, excluding the management members, will also provide a $5.5-million debtor-in-possession loan to CannTrust Equity, which will rank behind an existing $22.5-million debtor-in-possession loan from Courtland Credit Lending Corporation.
These terms were part of a proposed transaction under the Companies Creditors’ Arrangement Act, and were approved by the Ontario Court of Justice on Friday. The approval coincided with an extension of a stay order until March 25, or closing of the deal, at which time the firm expects to exit from the creditors’ Act proceedings.
The deal includes an option that allows the investor group to exchange shares in CannTrust Equity for a like number of shares in CannTrust Holdings. That exchange will only happen if the Ontario Securities Commission revokes the firm’s cease-trade order.
If the exchange does happen, the company says an additional offering will be made to current shareholders to buy more common shares at a lower-than-market price.
The company used to trade on the Toronto and New York stock exchanges until a cease-trade order was issued in April 2020.
This financing comes after a series of rejections from potential bidders.
“This is the culmination of two-and-a-half years of hard work from the entire CannTrust team,” CEO Greg Guyatt said in a statement. “We have remediated and improved our operations, restored our cannabis licences, relaunched our business, settled all class action litigation against the company and others, and now secured the right strategic partner.”
Guyatt says the company will be renaming itself in the coming weeks.
CannTrust is a high-quality investment opportunity, says Kenzoll B.V. owner Corné Melissen.
“We’ve been consistently impressed with the current business, its operations and management team and we’re excited to be working together,” he said.
“Over the past few years, we have assembled business interests in the cannabis space in Africa and the Netherlands, with a world class management team dedicated to finding synergies where possible. We are confident that Canadian legalization will give rise to more jurisdictions following suit, and that CannTrust will provide us with the North American foundation and industry expertise to become a global leader.”
In 2019, a whistleblower revealed the company was growing cannabis plants illegally behind fake walls in five unlicensed rooms at its Pelham, Ontario facility.
Health Canada suspended all of its licences, which led to its financial ruin and eventually quasi-criminal fruad charges being laid against former executives last year.
In January, the company warned of an operational wind-down as its cash reserves began to run out. At the time, it put over $50 million into a trust to settle class action settlements related to investors who had bought equity in CannTrust the year before the fraud was discovered.