A Justice of the Court of Alberta has approved Manitoba-based cannabis company Delta 9’s sanction order and stay extension, SAVO, and ARVO, while rejecting the Canada Revenue Agency’s recent objections to parts of the deal. 

The deal includes Delta 9, Fika, SNDL, and Simply Solventless and allows Delta 9 to move closer to closing the book on an extensive process.

The sanction order and stay extension extended the stay until February 28, 2025. This stay of proceedings has been extended on several occasions, starting on September 11, 2024, when the court granted an order that extended the stay period under the ARIO to November 1, 2024. This also approved an amendment to the interim financing terms sheet between the Delta 9 group and Fika. The ARIO approved, among other things, the appointment of a Chief Restructuring Officer, with Delta 9 group borrowing funds from 2759054 Ontario Inc., operating as Fika Herbal Goods.

The judge found that an extension was required to allow for implementing the plan and determining its financial dispute with SNDL Inc.

The application for a Sale Approval and Vesting Order (SAVO) and an Approval and Reverse Vesting Order (ARVO) involved the sale and vesting of certain assets to a numbered company, 6599362 Canada Ltd, the owner of the lands and building known municipally as Building E located on 760 Pandora Ave. East, Winnipeg, Manitoba. 

This includes the 95,000-square-foot cannabis cultivation and processing facility in Winnipeg, Manitoba, known as the Bio-Tech Facility. The deal included an amendment to give the Manitoba Ministry of the Environment and Climate Change the right to file a comeback application to vary the terms of the SAVO in respect of any potential environmental remediation obligations.

It also included a December 28, 2024, share purchase agreement (SPA) between Delta 9 Parent, Bio-Tech, and Simply Solventless Concentrates Ltd (SSCL) by which the Delta 9 parent company would sell its shares of Bio-Tech to SSCL as required by the reverse vesting order (RVO) structure.

The Canada Revenue Agency (CRA) recently requested that the stay against Delta Bio-Tech Inc. be lifted to the extent necessary to allow it to assess Delta-9’s CEO, John Arbuthnot, and the company’s other directors for unremitted excise duties before Delta 9’s liability for them is transferred to a new company, ResidualCo.

The Justice of the Court, Michael A. Marion, said the CRA submitted its objections too late, and lifting the stay against Delta 9 would negatively harm the associated deals the company is making to address the dire financial situation that led to its filing for creditor protection in July 2024, and also entering into an agreement with FIKA. This was in response to an “aggressive” move by Delta 9’s largest creditor,  SNDL Inc, in May 2024.

The judge wrote that the CRA’s request would put all of these deals at risk, further jeopardizing its ability to recoup any of the excise tax it is due.

“While it is true that Delta 9 misused funds owed to CRA for other purposes,” writes the judge, “it appears to have been to attempt to maintain the business as a going concern during tumultuous times in a new industry. This is not an excuse but is a relevant factor, particularly given that the Arrears appear to have accumulated over an extended period and CRA did not strictly enforce its rights.

“In the CCAA proceedings, CRA waited to see how things unfolded, including whether the Bio-Tech SISP process might garner a qualifying bid that would generate CRA better recovery. Then, at the last possible moment, CRA asked the Court to reject the Bio-Tech directors’ release and lift the Stay in its favour without a filed application or supporting evidence. CRA has not proven, on this record, that Arbuthnot or former directors did not act in good faith…The evidence and arguments from other Hearing participants, including the Monitor as court officer, suggests Arbuthnot has been acting in good faith.”

This article included significant input from Sarah Clark

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