The saga of the once-promising cannabis company iAnthus (OTC: ITHUF) continues as the company has now turned against its lender (and one-time savior) Gotham Green Partners. The latest move comes just as a New York court dismissed a shareholder lawsuit led by Hi-Med LLC that claimed iAnthus had the money to make its debt payments to Gotham Green but instead defaulted and created a situation that would allow Gotham Green to take the company from shareholders. Green Market Report was able to view the case filed by iAnthus against Gotham Green for this story.
iAnthus Wants Gotham Gone
The new case is filed by current iAnthus CEO Randy Maslow in the Ontario Supreme Court against Gotham Green after the lender asked the court to give it an indefinite amount of time to restructure. When iAnthus didn’t make its debt payments to Gotham Green, the lender moved to take over the company. The problem that the reorganization is facing is that Gotham Green has investments in many of the cannabis companies competing against iAnthus. Several states have restrictions against cross-ownership and so Gotham Green is having trouble getting approvals in many states. States often don’t want one company owning too many licenses in any given area so that there is healthy competition and opportunities for less-funded applicants.
The case stated, “Despite the passage of a further two months, approval is still outstanding from four of the five U.S. state regulators, specifically those in Florida, Maryland, Massachusetts and New York. These states represent over 80% of iAnthus’ storefronts and over 70% of iAnthus’ operational facility space. Their importance is only expected to increase in the coming years.” The original restructuring agreement occurred in July 2020 and gave the company a year to get the approvals. iAnthus also accuses Gotham of causing the delays leaving the company in limbo. The only state that has given its approval is Nevada.
MedMen is specifically mentioned as an issue of cross-ownership problems. The case says that Gotham owns approximately 60% of the MedMen voting shares due to the financing Gotham provided the company. Confusing this situation, even more, is that Tilray (NASDAQ: TLRY) just announced it was buying the majority of the outstanding senior secured convertible notes of MedMen that were originally held by Gotham Green. However, Tilray can’t remain on the Toronto Stock Exchange if it owns a U.S. cannabis company, so it can’t convert the shares until cannabis is federally legal. So, MedMen and GGP amended the restrictive covenants and extended the debt maturity to 2028, and said claimed it was meant to give MedMen more time execute its strategy, but it also buys Tilray more time. Still, Gotham Green will continue to 0wn 9% of MedMen even after the sale and continue to have a board member.
Gotham has claimed that the pandemic among other things was the reason for the delays. In Florida, Gotham cited the Surfside condominium collapse as a reason as well as vacations.
Back in 2020, iAnthus was in a cash crunch and convinced shareholders that the only way out was to let its lender take over. Now it seems other lenders are happy to step in and help. The case stated, ” the Company has received at least three unsolicited written offers (and multiple unsolicited telephonic expressions of interest) to recapitalize the Company, all of which would
provide for a full and immediate payment of all principal, interest and fees owing to the Lenders and meaningfully better terms for Existing Shareholders than the 2.75% equity interest
contemplated by the Recapitalization Transaction. The debt repayments contemplated by these offers would result in the Secured Lenders receiving a return on investment of over 15% and the Unsecured Debenture Holders receiving a return on investment of approximately 8%. In addition to the Lenders’ return on their debt instruments, the Secured Lenders and Unsecured Debenture Holders hold approximately 15.9 million warrants and 3.7 million warrants, respectively. ”
Hi-Med was one of iAnthus’ largest shareholders. It alleged in its case that an escrow account set up by iAnthus to cover interest payments was never tapped. Hi-Med also alleged that there was a conspiracy between iAnthus’ former CEO Hadley Ford and Gotham Green to trigger a default. On April 6, 2020, iAnthus announced it had defaulted on $4.4 million in interest payments to the private equity firm Gotham Green Partners because of the coronavirus pandemic, as well as a decline in cannabis markets overall. The investors said there was an escrow of more than $5.7 million to pay one year’s interest on the 2018 debentures in the event of an iAnthus default. That agreement was amended in September to provide an additional $20 million to iAnthus, according to court documents.
The loss though hinged on the definition of the shares being traded. The investor’s case said that the iAnthus’ shares they bought are listed on the Canadian Stock Exchange and also trade in the U.S. on the OTCQX market. However, the Judge overseeing the case said that the OTC didn’t qualify as an exchange transaction. Still, Hi-Med was given until September 30 to file amended complaints.
iAnthus Gets Stronger
Since the cash crunch of 2019, iAnthus has continued to operate and get stronger by the quarter. iAnthus has reported $227 million in revenue (representing 110% growth) and positive adjusted EBITDA in the five publicly reported quarters since it defaulted in April 2020. Last month the company reported its financial results for the quarter ending June with revenue increasing 57% to $54.2 million. The company trimmed its net losses to $15.3 million, or a loss of $0.09 per share, versus a loss of $24.8 million, or a loss of $0.14 per share, in the same quarter in the prior year.