The recent Aug. 8 auction for Skymint had only one taker – Tropics LP, the Canadian investment firm that held the debt that pushed the company into receivership in the first place.
Tropics is now set to proceed with a credit bid process, which allows a creditor to bid on the assets of a company with the money owed to them.
The auction came after Skymint, which operates primarily under its parent company’s name of Green Peak Industries Inc., was unable to repay $135 million owed to Tropics.
In early July, Tropics bid $109.4 million for Skymint’s assets, and the expectation was that because of the defaulted debt, any new prospective taker would be on the hook for at least $244.4 million.
Tropics is a subsidiary of Calgary-based SNDL’s (NASDAQ: SNDL) investment firm SunStream. SNDL announced this month that it plans to take over Skymint and Parallel using a newly created U.S. entity, SunStream USA, as the financial vehicle. The structure would provide a window for SNDL to engage with SunStream’s assets.
SNDL continues to value its SunStream joint venture at full rate despite the challenges Skymint and Parallel have faced. Green Market Report wrote in June that a source at SNDL said the company has taken impairments of $90 million, but no such accounting appeared in the latest report.
While the Skymint auction is complete, SNDL CEO Zach George clarified during the company’s latest earnings call that “for that transaction to occur, there’s a subsequent court date in early September, where a ruling is required.”
In regards to Parallel, George noted, “You’ve got licenses in multiple states, and a much more complicated capital structure, which requires an agreement between stakeholders to get to a resolution in terms of the restructuring. And it’s expected to be taken through a foreclosure process.”
Additionally, before its roll-out, the proposed SunStream USA setup is expected to be scrutinized by Nasdaq, which is the listing authority for SNDL. The exchange has previously chopped at Canopy’s plan to uplist its American investments in similar fashion. Last month, Canopy received notice warning a delist if its valuation didn’t meet the minimum requirements.
“We’re working with various regulators on a number of compliance structures to enable us to run the business and manage our exposures,” George said.
Another legal matter
Skymint is also still in the midst of another court battle with investment firm Merida Capital, which could have implications for the auction’s closing.
Merida Capital developed a dispensary chain known as 3Fifteen, which consisted of 10-11 dispensaries, with licenses to open an additional five or six. The firm at one point attempted to merge its chain with Skymint.
Merida alleges that, during the process, Skymint failed to properly disclose the status and specifics of an outstanding loan. The private equity firms said Skymint intentionally concealed the loan’s status, potentially due to pressure from their lender over performance issues.
The firm also claimed that SNDL and its associated entities collaborated with Skymint in a manner perceived by Merida as fraudulent, all with the intention of expanding their asset base without any financial expenditure.
With the matter of the undisclosed loan and the alleged deliberate concealment of its status, the auction, its results, and the associated credit bid will likely be under additional scrutiny.
Upcoming hearings and filings scheduled for late September are expected to provide more clarity on the situation.