Delta 9 Cannabis carries on amid receivership

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This article was published 05/12/2024 (347 days ago), so information in it may no longer be current.

Almost five months into its court-appointed receivership, Delta 9 Cannabis Inc. creditors will have a chance to vote on the Manitoba company’s plan of arrangement later this month.

It’s not clear exactly what the dollar value total of unsecured creditors’ claims is (likely somewhere between $15 million and closer to $50 million), but what is known is there will be $4.75 million to distribute to them.

SNDL Inc., the Calgary-based liquor and cannabis company that holds about $40 million in secured debt (and effectively initiated the receivership), will be paid in full.

Meanwhile, Delta 9 continues day-to-day operations.

Only four of its 41 retail operations have closed (three in Alberta and the small outlet that had been located in the Kirkfield Motor Inn on Portage Avenue West) and its cultivation operation has carried on pretty much at full capacity.

John Arbuthnot, co-founder of the company (with his father Bill), is still putting in long hours as the arduous, detailed receivership process drags on.

While he may not be happy to lose ownership of the company, he’s happy its financial failings have not had much impact on employees.

“In aggregate, of the 440 employees we had when we entered this process, we still have a head count of 420,” Arbuthnot said this week.

“In terms of the annualized revenue, we had of $75 million before the receivership; the company is still producing $75 million. So the whole process has had a rather negligible impact on the top line and overall head count.”

The Winnipeg cannabis producer — one of the original 13 licensed by Health Canada in 2014 — was forced into receivership after SNDL acquired Delta 9’s $28 million secured debt it had borrowed from an Alberta credit union.

Conventional wisdom within the industry was SNDL’s plan was to use the receivership to acquire Delta 9’s retail stores. But before that could happen, Delta 9 arranged to go into receivership with Fika Herbal Goods, an Ontario-based national cannabis retail company, as the so-called “plan sponsor.”

As part of the agreement, Fika would acquire all Delta 9’s retail stores and continue operating them.

Fika has grown its chain of 144 cannabis stores in five province by acquiring others out of receivership. Since September 2023, Fika has successfully closed three acquisitions, totalling more than 45 cannabis retail locations, with an aggregate transaction value of more than $27 million.

As the plan sponsor, it will also take responsibility to pay off the SNDL debt.

However, Fika does not want to own Delta 9’s cultivation operation located in the Transcona neighbourhood of Winnipeg.

Those facilities have been marketed for several months under the court-monitored sale and investment solicitation process. Qualified bids were to have been submitted by the end of October.

Arbuthnot said there was sufficient interest and a deal should be closed on the 100,000-square-foot cultivation hub (with its 297 production pods) by mid-January.

What has already been sold is the company’s specially designed grow pod production operation, acquired by Waterloo, Ont.-based Nebula Group for an undisclosed sum. Nebula is in the controlled-environment agriculture business.

In addition to being its own cultivation platform, Delta 9 has previously marketed the specially designed shipping container grow pods to third-party cultivators across Canada and the United States.

Details of the plan of arrangement unsecured creditors will vote on at a virtual meeting Dec. 20 are part of the documents under a court-ordered seal, making them unavailable to the public.

The same is true regarding the details of the SISP on the cultivation operation, called Delta 9 Bio-Tech Inc.

Arbuthnot said negotiations are underway for Bio-Tech but would not disclose the number of bidders or the relative valuation the operation might command.

martin.cash@freepress.mb.ca