Red White & Bloom Brands Inc. (CSE: RWB)(OTC: RWBYF) got good news regarding its intentions to buy troubled Aleafia Health. The company’s stock popped more than 450% on the news, although the shares still only traded at two cents per share.
The Ontario Superior Court of Justice approved a stalking horse asset purchase and share subscription agreement in which RWB could buy certain assets from Aleafia and subscribe for shares of certain subsidiaries of the company if RWB becomes the successful bidder in connection with the bankruptcy proceedings of Aleafia.
RWB said it made the following bid:
- A release of all amounts outstanding and obligations payable by the Aleafia Group under the loan agreement made as of Dec. 24, 2021, and all related loan and security documentation, which amounted to $15,414,622
- A release of all amounts outstanding and obligations payable by the Aleafia Group as of the closing date pursuant to the debtor-in-possession (DIP) financing of up to $6.6 million
- $400,000 cash
- $1.25 million for legal costs and $2.85 million for officers and directors costs
- Just under $6 million for the secured lender 1260356 Ontario Limited
- An amount sufficient to satisfy any remaining priority payments as of the Closing Date as required under the CCAA
Path to Acquisition
In June, RWB said it would buy Aleafia. Green Market Report wrote that after experiencing recurring losses, Aleafia faced substantial challenges in meeting its financial obligations and maintaining liquidity to fund ongoing operations and further revenue growth. That, along with existing contractual restrictions, constraints on accessing capital markets, and Aleafia’s financial condition made it challenging to secure alternative sources of funding.
At the time RWB CEO Brad Rogers said, “The intended acquisition of Aleafia expands our footprint to the largest federally legal cannabis market globally. Combining our award-winning brands and IP with Aleafia’s proven cultivation, manufacturing, and distribution capabilities, creates one of the most dynamic cross-border companies in the industry.”
However, in July, the companies agreed to terminate the deal. Aleafia has been in breach of certain covenants of its debt. At the time, Aleafia refused to agree to the terms RWB had laid out and ended the deal.
At the end of July, Aleafia said that it had received an order from the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act, to restructure its business and financial affairs. The Initial Order approved, among other things, debtor-in-possession financing.