Talladega wants out of the Parallel cannabis lawsuit. This is the lawsuit that disgruntled Surterra Wellness (now known as Parallel) investors filed against the company’s leader beau Wrigley and Surterra Holdings, along with a family office and Talladega LP and Talladega Inc. The company filed a motion earlier this week to dismiss its involvement and outlined why it should not be a part of the lawsuit. Talladega was not initially named in the case, instead, it was Canadian hedge fund SAF Group, but they were replaced by Talladega.
At issue is a bridge loan that Talladega extended to Surterra/Parallel. The lender, who owns the Junior Notes says it was a purely selfish move to keep the company operational in order to protect the health of those junior notes.
Not In New York
First, Talladega says it shouldn’t be included in a New York lawsuit since it isn’t located in the state. The company is based in Canada and says that alone should be grounds for getting itself dismissed from the case.
Bridge Over Troubled Water
Next Talladega says it only provided a bridge loan that kept Parallel operating and didn’t really classify as debt that would breach the covenants of the other debt instruments. In the motion Talladega says, “Beginning in June 2021, shortly after Talladega and the company entered into the Talladega Credit Agreement, the company began to experience financial stress and defaulted under both the Note Purchase Agreement and the Talladega Credit Agreement. On December 16, 2021, Talladega issued a notice of default to the company listing 11 defaults or events of defaults under the Talladega Credit Agreement. Following issuance of the notice of default, the company, PE Fund, and Talladega entered into discussions to provide financing to the company to allow it to “bridge” the gap until the Company could be sold to one or more third-parties, or recapitalized.”
Talladega says the unhappy investors waited until 10 days after the bridge loan to file the lawsuit. The investors claimed that Talladega completed the bridge loan in order to earn more fees and jump to the head of the capital line. Talladega says it was just trying to protect itself from Parallel going under. The company wanted to give Parallel a chance to find a buyer or get more financing. The fee amounts in the bridge loan documents are redacted.
The investors also complained that Talladega was an insider, but again the company says that is wrong. The filing stated, “Beyond Talladega’s participation in the Talladega Credit Agreement and the Bridge Credit Agreement, Talladega has no close relationship with the Company that would give it any sort of control over the Company or the Company’s actions.”
The investors believe Talladega knew more than it is saying because it was the Administrative Agent and Collateral Agent for the Junior Note holders for Parallel. The original complaint stated, “The Junior Lien Notice informed the Company that it had failed to (i) maintain the required debt-service-coverage ratio; (ii) maintain specified adjusted consolidated EBITDA as of September 30, 2021; and (iii) “pay Catch-Up [a]mount[s]” due as of September 30, 2021. 99. The Junior Lien Notice also explained that the Company had defaulted on the Junior Note through its “incurrence of Indebtedness pursuant to that certain Negotiable Subordinated Promissory Note dated June 30, 2021”—i.e., the PE Fund Note.” However, Talladega sending out the default notice didn’t make it an insider.
Since Parallel is a private company, there is little information as to the health of the company. Within the state of Florida, where the company mainly operates it is number five on the list of top license holders with 46 licenses according to Cannabiz Media. Trulieve leads with 121 licenses, followed by Curaleaf with 50, then Verano at 48, and Ayr Wellness with 47 licenses. However, none of the companies break out their revenues from Florida, so it’s difficult to determine how much revenue is coming into the company.