SOL Global Investments Corp. (CSE: SOL) (OTCPK: SOLCF) reported an unaudited earnings result for the quarter ending August 31, 2021, with a loss of $62.4 million versus last year’s income of $43.7 million for the same time period. Sol Global noted that this was a negative change of $106.1 million. The company attributed it to the one-time expense related to the settlement agreement with its former lender of $68.5 million.
For the quarter the company only reported $12.5 million in total gains from investments versus last year’s $60.3 million for the same time period. This represents a negative change of $47.8 million between periods. Sol Global claims this is due to an overall weakness in the market.
“Managing small cap and cannabis investments from the long side during third quarter was like playing tag in a minefield,” said Andy DeFrancesco, SOL Global’s Chairman and CEO. “Even positive news saw stock prices continue to drop. Once again my team battled through and we outperformed in our sectors. We remain extremely confident in our underlying holdings and will not transact from the pressures of short-term price fluctuations. We will stick to our 2 to 5 year time horizons on core positions which allow for smaller companies to properly execute on the business models we are backing.”
Loan Settlement Woes
Sol Global settled its litigation with its previous lender 1235 Fund. The two companies engaged in a battle over whether the once private Verano shares could be claimed as collateral for a loan. Sol Global tried to get the case moved to New York but was rebuffed. 1235 Fund had actually suggested that the shares were worth $500 million but ultimately settled for less.
In August it was announced that a subsidiary of SOL Global would buy all of 1235’s rights under the Debenture for C$120 million (which was C$68.5 million above the Debenture’s principal and accrued interest) and that was paid on September 7, 2021. The subsidiary got an equity investment from SOL Global which has entered into a loan agreement with an arm’s length private lender for a secured loan in the principal amount of C$50 million. The Loan will have a term of 12 months and will bear interest at the rate of 9% per annum.
The conflict between the two parties arose after Sol Global began claiming that MMCap and 1235 Fund had no rights to the Verano shares as repayment for a loan. Sol Global was in a cash crunch back in July 2019. The one thing of potential value it owned was a large investment in the privately-held cannabis company Verano. MMCap bought the debenture through what was called the 1235 Fund giving Sol $50 million with the risk that Sol could possibly go under and not repay the $50 million or the Verano shares could end up being worth much less than the $50 million it had spent. At the time, it was a risky deal as it was difficult to determine the outcome. Cannabis stocks were suffering through a tremendous bear market and valuations had plunged across the board. Sol Global wanted to just pay back 1235 Fund in cash, while 1235 Fund wanted to take the now publicly-traded Verano shares as repayment.