Editors note: This story was updated on 9/29/2020.
Just two weeks ago, iAnthus Capital Holdings, Inc. (OTCQX: ITHUF) announced that, at the meetings of Secured Noteholders, Unsecured Debentureholders and Existing Equityholders voted overwhelmingly in support of the previously announced recapitalization transaction to be implemented by way of a court-approved plan of arrangement under the British Columbia Business Corporations Act. The hearing was planned for September 25, 202. The stock was halted for trading this afternoon.
According to a post on Twitter on Monday by Andro George, the plan was dismissed. George has been working with shareholders to claim that the assets are more valuable than what is being presented in court. It seems iAnthus was offering common shareholders 2.75%, while they believe they should get something in the ballpark of 25%-32.5%.
On Tuesday iAnthus released an announcement saying “Justice Gomery held that the Plan of Arrangement was put forward in good faith and met the statutory requirements of the British Columbia Business Corporations Act (the “BCBCA”). Justice Gomery was also satisfied that the Plan of Arrangement had a valid business purpose and was approved by the security holders in accordance with the requirements of the BCBCA. The Plan of Arrangement included a release of claims and Justice Gomery did not approve the form of release of claims presented to the Court. Accordingly, Justice Gomery will have conduct of the matter and has not made a final ruling on the fairness of the Plan of Arrangement.”
“Under the RSA, iAnthus is obligated to pursue the Recapitalization Transaction under the Companies’ Creditors Arrangement Act (“CCAA”) within five business days if the final court order for the Plan of Arrangement was not granted by September 28, 2020. The parties to the RSA have agreed to extend the Deadline to Tuesday, October 6, 2020.”
iAnthus’ problems began in April when Chief Executive Officer Hadley Ford has resigned from his position after an investigation by the board’s special committee. The company’s President and Co-founder Randy Maslow was appointed as the interim CEO effective immediately.
The company formed a special committee to look into allegations made in an online media report that Hadley had misused company funds for his own benefit and that there was a conflict of interest. The committee determined that two of the allegations were substantiated and recommended further action. According to a company statement, the Special Committee determined that Ford entered into two undisclosed loans with iAnthus’ senior secured lender, Gotham Green Partners (one loan for $100,000 with a related-party and the other for $60,000 with a non-arm’s length party) and those loans created a potential or apparent conflict and should have been disclosed to the board in a timely way.
In August, the company reported a staggering net loss of $237.3 million, which included a $199.4 million impairment loss. While the revenue rose 12% sequentially to $30.4 million, the net losses and defaulting on debt payments have overshadowed any good news.
iAnthus said in its earnings statement that it did not make interest payments due on its Secured Notes and Unsecured Debentures due on March 31, 2020. “This non-payment of interest triggered an event of default with respect to these components of the Company’s long-term debt, consisting of principal amounts at face value of $97.5 million and $60.0 million and accrued interest amounts at March 31, 2020, of $3.2 million and $1.2 million on the Secured Notes and Unsecured Debentures, respectively.”
At this point, the credit Gotham Green Partners (GGP) demanded its debt payments or it was taking over the company and leaving the common shareholders with very little. Obviously, the shareholders felt that a lender that cared about the company would give it more time to pay and restructure the debt. The shareholders were told that if they didn’t vote for the recapitalization plan giving GGP most of the company then they would get almost nothing. Many voted against the plan, but iAnthus said 68% voted in favor.
Andros George contested the shareholder voting amounts and noted that he believed that not enough shareholders had voted in favor and that the CEO could not vote those shares by proxy. He believed he had 25% of the shareholders voting against the plan. He suggested the GGP was a predatory lender and that the executives of iAnthus were not acting with the best intent for the shareholders.
Shareholders have pointed to improving earnings in the first quarter with reported revenues up 12% from the prior quarter. They have also pointed to other cannabis company acquisitions with similar assets, suggesting that if iAnthus sold some assets it could address its debt issues.
This story is developing and will be updated as more information is released.