DN:CC - Delta 9 Enters into Binding Term Sheet with The FIKA Company to Maximize Stakeholder Value and Obtains CCAA Protection
(TheNewswire)
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 initialorder for creditor protection (the “Initial Order”) from the Courtof King’s Bench of Alberta (the “ Court ”)under the Companies’Creditors Arrangement Act (the “CCAA”). TheInitial Order provides for a 10 day stay (the “Initial Stay”) ofcreditor claims and proceedings in respect of the Company andits subsidiaries, Delta 9 Logistics Inc. , Delta 9Bio-Tech Inc., Delta 9 Lifestyle Cannabis Clinic Inc. and Delta 9 Cannabis Store Inc. (the“ Subsidiaries ”).
Following consultation with its legal and financialadvisors, the board of directors of Delta 9 determined that it is inthe best interest of the Company and its Subsidiaries to obtain CCAAprotection. The decision to undertake these actions was made aftercareful consideration of: (i) the cash and liquidity position of theCompany; (ii) the amount of debt of the Company and the Company’sinability to repay such debt over the next twelve months, includingpayments to suppliers and trade creditors; (iii) the limited abilityof the Company to raise further capital; and (iv) all availablealternatives to an application for creditor protection. Aggressive actions by the Company’s creditors, namelydemand notices by SNDL Inc. on May 21 st and July12 th , as well as SNDL Inc.’s recent acquisition of all theCompany’s senior secured debt, also played a material role in thedecision to seek creditor protection.
In conjunction with the above, the Company announcesthat it has entered into a binding term sheet (the “Term Sheet”)with a proven industry partner to maximize the value of the Companyfor both shareholders and creditors. This Term Sheet will see 2759054Ontario Inc. o/a The FIKA Company (the “Plan Sponsor”) act as plansponsor to the CCAA proceedings whereby the Plan Sponsor proposes toacquire the cannabis retail store business and the logistics anddistribution business of the Company, while facilitating a sale andinvestment solicitation process for the assets of the licensedcannabis production business (the “LP”) of the Company, inexchange for equity of the Plan Sponsor and the satisfaction ofcertain secured debt of the Company (the “AcquisitionTransaction”). Pursuant to the Term Sheet, the Plan Sponsor hasagreed to participate in and fund the costs of the CCAA proceedingsthrough interim financing as well as to present one or more plans ofcompromise or arrangements (collectively, the “Plan”) to thecreditors of the Company and its Subsidiaries to effect theAcquisition Transaction through the CCAA proceedings (the“Restructuring”).
“We are pleased to have entered into the Plan SponsorTerm Sheet with FIKA in a series of transactions which we believe willmaximize value for our stakeholders, shareholders, and creditors,”said John Arbuthnot, CEO of Delta 9, “We appreciate the hard work ofall of Delta 9’s employees, management, executive, and board ofdirectors over the past twelve years to help create what has been anincredible growth story for Delta 9. We look forward to working withFIKA through the restructuring process to unlock the value of Delta9’s assets for stakeholders, and to create the next chapter ofgrowth for Delta 9.”
The Initial Order includes, in addition to the InitialStay and other items: (i) the appointment of Alvarez & MarsalCanada 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 andits Subsidiaries for the fees of the Monitor and its legal counsel andthe legal counsel to the Company and its Subsidiaries, and adirectors’ charge in the amount of $300,000. The Monitor has setup a website at: www.alvarezandmarsal.com/Delta9 where updates on the restructuring process, the Monitor’s reports tothe Court, Court orders and other information will be posted as soonas they are available.
In accordance with the Term Sheet: (i) the Plan Sponsorwill provide up to $16 million in interim financing (the “ IF Loan ”) to the Company and its Subsidiaries to fundthe CCAA proceedings, including up to $3 million to fund the costs ofthe CCAA proceedings and up to $13 million to repay the securedobligations owing to SNDL Inc. (“SNDL”) in accordance with itssenior secured second-lien convertible debenture dated March 30, 2022; (ii) the Plan Sponsor, if the Plan is approvedin the CCAA proceedings, is proposing to issue voting common shares inthe capital of the Plan Sponsor (“Sponsor Shares”) to theshareholders of the Company , with an aggregate value of $2million; (iii) the Plan Sponsor, if the Plan is approved in the CCAAproceedings, is proposing to make an aggregate of $4 million inSponsor Shares available to creditors electing to convert their debtinto Sponsor Shares; (iv) the Plan Sponsor is also proposing to repayapproximately $27,868,284 of additional secured debt of the Company and its Subsidiaries to SNDL, which were recently acquiredby SNDL from Connect First and Servus Credit Union Ltd.; (v) the PlanSponsor will fund any increase to the IF Loan, if necessary, to coverthe costs of the CCAA proceedings; and (vi) the Plan Sponsor shallfund the Plan, including a distribution to unsecured creditors of atleast $750,000.
A comeback application in respect of the relief grantedpursuant to the Initial Order has been scheduled for July 24, 2024(the “Comeback Application”). At the Comeback Application, the Company and its Subsidiaries anticipateseeking approval for: (i) the Term Sheet; (ii)the IF Loan Term Sheet (iii) a key employee retention plan (iv) theappointment of a chief restructuring officer (v) an increase to theadministration charge and directors’ charge and (vi) the approval ofa sales and investment solicitation process for a going concerntransaction for the LP.
Management of the Company andits 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 shallbe supported by cash from operations with additional cash from the IFLoan , as required . Inaccordance with the Term Sheet, the Company shallengage a chief restructuring officer (“CRO”) selected by the Company and the Plan Sponsor tofacilitate the Restructuring. The CRO shall be consulted prior to the Company or any Subsidiary making anymaterial decision related to the Restructuring. All directors of theCompany, other than John Arbuthnot and Bill Arbuthnot haveresigned.
Management and the board of the Company believe thatobtaining CCAA protection and entering into the Term Sheet with thePlan Sponsor is the best option available to the Company given itscurrent financial position, careful consideration of all availablealternatives, 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 operationswithout interruption and will not result in any immediate significantchanges to the Company’s operations.
MLT Aikins LLP is acting as legal counsel to the Company and its Subsidiaries inconnection with the CCAA proceedings and the AcquisitionTransaction.
It is anticipated that the Toronto Stock Exchange (the“TSX”) will place the Company under a delisting review as aresult of the Initial Order and related matters and there can be noassurance as to the outcome of such review on the continuedqualification of the Company’s shares for listing on the TSX.
About Delta 9 Cannabis Inc.
Delta 9 Cannabis Inc. is a vertically integratedcannabis 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 growpods to other businesses. Delta 9 ’s wholly-owned subsidiary , Delta 9 Bio-Tech Inc., is a licensed producer of medicaland recreational cannabis and operates a 95,000 square foot productionfacility in Winnipeg, Manitoba, Canada. Delta 9 ownsand operates a chain of retail stores under the Delta 9 Cannabis Store brand. Delta 9 ’s shares trade on the TorontoStock Exchange under the symbol “DN” and on the OTC under thesymbol “DLTNF”. For more information, please visit www.delta9.ca .
About The FIKA Company
The FIKA Company is a leading Canadian cannabisretailer operating 144 stores across the country under multiplebanners. Known for p roviding exceptional servicein a welcoming and intuitive store environment, FIKA’s portfolio ofstores have become the premier destination for the modern cannabisconsumer.
Disclaimer forForward-Looking Information
Certain statements in this release are forward-lookingstatements, which reflect the expectations of management regarding the Company’s future business plans andother matters. Forward-looking statements consist of statements thatare not purely historical, including any statements regarding beliefs,plans, expectations or intentions regarding the future. Suchstatements are subject to risks and uncertainties that may causeactual results, performance or developments to differ materially fromthose contained in the statements, including with respect to anyfuture decisions by the Court, the results of the Restructuring andany future operations of the Company, as well as all risk factors setforth in the annual information form of Delta 9 datedMarch 28, 2024 which has been filed on SEDAR+. No assurance can begiven that any of the events anticipated by the forward-lookingstatements will occur or, if they do occur, what benefits the Company will obtain from them. Readersare urged to consider these factors carefully in evaluating theforward-looking statements contained in this news release and arecautioned not to place undue reliance on such forward-lookingstatements, which are qualified in their entirety by these cautionarystatements. These forward-looking statements are made as of the datehereof and the Company disclaims any intent orobligation to update publicly any forward-looking statements, whetheras a result of new information, future events or results or otherwise,except as required by applicable securities laws.
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