Simply Solventless Concentrates Ltd. has entered into a share purchase agreement with Delta 9 Cannabis Inc. for the acquisition of all of the issued and outstanding shares of Delta 9 Bio-Tech Inc.

The deal is expected to add around $12 million in revenue. It is for cash consideration of $nil net of approximately $3 million of expected net working capital received, or cash consideration of $3 million without deducting expected working capital received, payable in a series of payments of $0.75 million by January 2, 2025, and $2.25 million on the closing date, expected to be January 31, 2025. 

In a press release, SSC, which does not produce flower itself, says that the acquisition of Delta 9 will help the company continue to make inroads in the dried flower market following its recent acquisition of pre-roll manufacturer ANC Inc. for $10 million. SSC expects that the all-in cash cost to cultivate cannabis through Delta 9 will be approximately $0.60-$0.70 per gram, among the lowest for indoor cannabis in Canada.

SSC reports that Bio-Tech currently produces approximately 9,000 kilograms of cannabis per year. The cannabis processor believes that with roughly $4 million in capital investment, production could potentially increase to 15,000-18,000 kilograms per year, but this is not planned at this time.

“The acquisition of Bio-Tech provides SSC with a predictable volume of high-quality Good Agricultural Collection Practice certified internationally exportable flower, with low per gram cost of cultivation, for an attractive acquisition metric of only 0.0x adjusted EBITDA post integration, net of expected net working capital received.” 

As Bio-Tech is being acquired through CCAA proceedings, SSC also says it assumes no debt or liabilities from the acquisition and believes that Bio-Tech will contribute meaningfully to further expanded revenue and adjusted EBITDA in Q1 2025. SSC will provide Q1 2025 guidance in the weeks after the closing of the Acquisition. 

In November, SSC reported net revenue of nearly $5 million for the three months ended September 30, 2024 (Q3 2024), with gross profits of almost $2 million, and $424,446 in net and comprehensive income.

Bio-Tech has approximately $60 million of accrued non-capital loss tax pools that SSC may be able to use. If these tax pools are utilized, SSC says they are expected to reduce future tax payments by up to $12 million at an effective tax rate of 20%.

In July, Delta 9 Cannabis received CCAA protection and entered into an agreement with cannabis retailer FIKA following what it called an “aggressive” move by Delta 9 secured creditor SNDL Inc.

In November, Delta 9 Bio-Tech announced it had selected a bid for the purchase of some of its assets through the SISP process, which began earlier this year. 

Delta 9 is a vertically integrated group of companies that touches cannabis cultivation, processing, extraction, wholesale distribution, retail sales, and business-to-business sales.

On July 15, 2024, Delta 9 Bio-Tech Inc. and four related entities were granted an initial order by the Court of King’s Bench of Alberta under the Companies’ Creditors Arrangement Act (Canada) (CCAA). 

On July 24, 2024, the Court approved a sales and investment solicitation process (SISP) to solicit interest in, and opportunities for, a sale of, or investment in, all or part of Bio-Tech’s assets and business operations. 

On September 11, 2024, the court granted an order extending Delta 9’s stay of proceedings pursuant to the Amended and Restated Initial Order (ARIO) first granted in July, up to and including November 1, 2024. That extension was to November 1 and has now been extended to January 31, 2025.

Delta 9 Bio-Tech’s assets include a 95,000-square-foot cannabis cultivation and processing facility in Winnipeg, Manitoba, which contains 297 modular “grow pods.” These are retrofitted shipping containers used by some micro cultivators. The company says they are customized for flowering, trimming, cloning, research, testing, support, and storage.

Delta 9’s Monitor sought confirmation from SNDL, the first-ranking secured creditor of the purchased assets, but had not received a response when the monitor’s fourth report was filed on November 13.

In a press release earlier in July, Delta 9 said that the CCAA process was in the best interest of the company and its shareholders, especially in light of recent “aggressive” actions by its creditors. These included demand notices from SNDL Inc. on May 21 and July 12 and SNDL’s recent acquisition of all the Company’s senior secured debt for $21 million.

SSC also announced the appointment of Jeff Holmgren as CFO and the promotion of Murray Brown, SSC’s current Vice President of Operations, to the position of COO. Additionally, SSC’s 8,700,000 common share purchase warrants exercisable at a price of $0.40 per share with an expiry date of December 23, 2024, have been exercised for proceeds of $3,480,000.

This is not SCC’s first acquisition. On June 25, 2024, the company entered into a services agreement and share purchase agreement with CannMart Inc., a cannabis company located in Etobicoke, Ontario, for $2.5 million. SCC also acquired Lamplighter in January 2024. 

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