Aleafia Health Inc. (OTC: ALEAF) and its subsidiary Emblem Cannabis Corporation and Aphria Inc. (NASDAQ:APHA)have said that the parties entered into a settlement agreement on June 25, 2020, to resolve their outstanding dispute in respect of the termination of the parties’ wholesale cannabis supply agreement.
Under the terms of the Settlement Agreement Emblem will get C$29.1 million which will consist of a C$15.5 million cash payment, the issuance of common shares of Aphria with an aggregate market value of C$10 million that will be freely tradeable and transferable in Canada and waiver of claimed receivables. The parties have also agreed to a mutual release of all existing and potential claims relating to the Supply Agreement, and to the dismissal of the arbitration proceedings that had previously been commenced.
“The settlement agreement is fair and satisfactory to both parties and allows Aleafia Health to move forward with a significantly strengthened balance sheet. With a substantial injection of value into our business, we can focus on our continued growth,” said Aleafia Health CEO Geoff Benic.
This settlement ends any and all potential claims and litigation against and between Aphria, Emblem, and Aleafia Health relating to the Supply Agreement.
A Busted Deal
The original problem stemmed from a deal that was agreed to on September 11, 2018, which said that Aphria would provide up to 175,000 kg equivalents of cannabis products over an initial five-year term, commencing May 1, 2019. Aleafia terminated its deal to buy cannabis from Aphria saying the company failed to meet its supply obligations.
“Following Aphria’s failure to meet its supply obligations under the Supply Agreement, Emblem has exercised its contractual right to terminate the Supply Agreement in accordance with its terms. The termination of the Supply Agreement by Emblem was made without prejudice to its rights accrued to the date of termination (including its rights to be refunded the unused balance of its deposit) and its rights to seek damages as a result of Aphria’s default and termination thereunder.”
At the time, Aphria released a statement saying, “We are disappointed that Aleafia has chosen to terminate its Agreement with Aphria Inc. The Company had every intention of fulfilling its obligations under the Agreement. As a large shareholder of Aleafia, Aphria made good faith efforts to ensure the continuation of the Agreement understanding it was in the best interest of all parties involved. However, the termination of this legacy Agreement frees up significant supply allowing the Company to service its brands that are in high-demand across the country.”