On May 21, 2024, SNDL Inc. issued a notice of intention to enforce security under section 244 of the Bankruptcy and Insolvency Act as a result of defaults under the applicable secured loan facilities made available to the Delta 9 Group by SNDL.
This was based on a $10 million loan to Delta 9 Cannabis Inc. by SNDL on March 30, 2022. The financing was structured as a 10% senior secured second lien convertible debenture with a maturity date of March 30, 2025.
On May 21, 2024, SNDL, by and through its counsel, issued a demand upon Delta 9 for repayment of its total indebtedness of $12,512,876.71 plus additional accrued interest, legal fees and expenses and additional costs or amounts recoverable by SNDL Inc.
On July 5, 2024, SNDL announced that it had acquired Delta 9 Cannabis’ debt, making it Delta-9’s senior secured creditor, bringing Delta 9’s total indebtedness owing to SNDL to $40,653,352.
On July 15, 2024, the Delta 9 Group sought and obtained its initial order under the CCAA, granted on July 24, 2024, which, among other things, extended the initial stay period until September 15, 2024, and approved a sales investment and solicitation process (SISP) in respect of the business and/or assets of Bio-Tech.
On July 15, 2024, Delta 9 also announced that it had entered into a binding term sheet for the FIKA Company to act as a plan sponsor to its CCAA proceedings. Through this process, FIKA would acquire Delta 9’s retail cannabis and distribution business while also assisting with a sale and investment solicitation process for the assets of the licensed cannabis production business. In exchange, Delta 9 would receive equity in FIKA.
Under that deal, FIKA would participate in and fund the costs of Delta 9’s CCAA proceedings through interim financing and present one or more plans of compromise or arrangements to Delta 9’s creditors. Under the agreement, FIKA would also provide up to $3 million to fund the costs of the CCAA proceedings and up to $13 million to repay the secured obligations owing to SNDL Inc.
That extension, granted after a court hearing on July 24, 2024, by Delta 9 and its subsidiaries—Delta 9 Logistics Inc., Delta 9 Bio-Tech Inc., Delta 9 Lifestyle Cannabis Clinic Inc., and Delta 9 Cannabis Store Inc.—includes the approval of the $16 million FIKA has offered in interim financing and a key employee retention plan in the amount of $650,00.
On September 11, 2024, a court granted an order extending the stay of proceedings pursuant to the Amended and Restated Initial Order (ARIO) up to and including November 1, 2024.
On September 12, 2024, Delta 9 paid $11,696,814.00 to SNDL for the debt outstanding under the Debenture. The court will determine the remaining portion of the amount due and payable to SNDL Inc., which Delta 9 disputes, on January 10, 2025.
On November 1, 2024, the court granted another order further extending the stay of proceedings pursuant to the ARIO up to and including January 31, 2025.
Bio-Tech had until July 26, 2024, to create a list of known potential bidders following the granting of the SISP Order, with a bid deadline of October 28, 2024. The SISP began on July 31, 2024, with 16 prospective bidders filing an NDA.
On November 11, 2024, Bio-Tech and its Monitor selected the highest and only serious bid: one for 17 of Delta 9’s grow pods and related intellectual property. This transaction closed on December 2, 2024. The bid price has been redacted in the monitor’s report.
Bio-Tech, with the assistance of its monitor, also recently selected a qualified bid tendered within the SISP by Simply Solventless Extracts for the purchase of Bio-Tech’s associated land, real property, and specific enumerated property, but excluding the property being retained by Simply as part of the retained assets under the terms of the sales and purchase agreement (SPA).
Simply’s bid was said to be the best overall for the property, taking into account the purchase price, the certainty of Simply’s ability to close, and other material terms of the transaction.
Pursuant to the SISP, Bio-Tech is also seeking the court’s approval of the applicant’s request for a vesting order at an application (ARVO) to be heard on January 10, 2025.
The proposed ARVO to be considered is a reverse vesting order that approves the vesting structure of the Simply Transaction.
The primary purpose of the reverse vesting structure is to preserve Bio-Tech’s various federal licences by facilitating an efficient operational transfer of Bio-Tech’s ongoing business and operations following the closing of the Simply transaction. Under a traditional asset sale transaction structure, the licenses are not transferable to a purchaser.
If approved, Delta 9 expects the Simply transaction to result in a going-concern outcome that will be beneficial to multiple stakeholders, including the retention of some of Bio-Tech’s 113 employees, as well as vendors and customers being able to continue to do business with Bio-Tech’s new owner.
As of the date of the initial filing, Bio-Tech’s listed tax liabilities were $7,831,515 (excise), $657,056 (GST), and $18,000 (source deduction liability), for a total of $8.5 million.
The Canada Revenue Agency (CRA) registered the amounts outstanding for the Excise Tax Liability ($7.8 million) on the title for Bio-Tech’s land. The Excise Tax Liability is registered subsequent in priority to the amounts owed to SNDL Inc. pursuant to its first mortgage and the second mortgage registered against the land.
Based on Bio-Tech’s current liquidity and the proposed transactions, Bio-Tech says it will not have sufficient funds to satisfy its total tax liability.
The ARVO seeks to provide for the release of Delta-9’s directors and officers for pre-filing claims including in connection with both the Excise Tax Liability, the GST Liability and the Source Deduction Liability.
Because of Delta 9’s tax arrears, the CRA moved to only renew the company’s excise licence on a 30-day basis, beginning in December 2023. Delta 9 Bio-Tech was also required to enter into a payment plan to address its owed excise tax in monthly payments of $50,000.
To keep the licence renewed, the company must pay the $50,000 payment and the monthly excise tax amount going forward, which Delta 9 founder John Arbuthnot says is a significant financial strain on the company.
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