Aleafia Health obtains creditor protection to pursue restructuring, sale process

Aleafia Health announced that the company and certain of its Canadian subsidiaries, Emblem Corp., Emblem Cannabis Corporation, Emblem Realty Ltd., Growwise Health Limited, Canabo Medical Corporation, Aleafia Inc., Aleafia Farms Inc., Aleafia Brands Inc., Aleafia Retail Inc., 2672533 Ontario Inc., and 2676063 Ontario Inc., have been granted an order from the Ontario Superior Court of Justice under the companies’ Creditors Arrangement Act, in order to restructure their business and financial affairs. On July 14, 2023, Aleafia announced the mutual termination of the binding letter agreement entered into between Red White & Bloom Brands Inc. and Aleafia on June 6, 2023 in respect of the proposed business combination transaction. In addition, pursuant to an assignment of indebtedness and security dated June 6, 2023, NE SPC II LP assigned to RWB, all indebtedness of Aleafia and certain of its affiliates in connection with the loan agreement made as of December 24, 2021, as amended on March 28, 2022, June 17, 2022, April 26, 2023, May 15, 2023, and May 31, 2023. Aleafia is currently in breach of certain covenants under the Aleafia Senior Secured Loan Agreement, RWB has not waived any outstanding breaches and, on July 24, 2023, RWB issued demand letters and notices to enforce security under Section 244 of the Bankruptcy and Insolvency Act. The Initial Order provides for, among other things: (i) a stay of proceedings in favour of the Aleafia Group; (ii) the approval of debtor-in-possession financing in accordance with the DIP Term Sheet; and (iii) the appointment of KSV Restructuring Inc. as monitor of the Aleafia Group. The DIP Loan is anticipated to fund the operations of the Aleafia Group in the ordinary course through the duration of the CCAA proceedings. The stay of proceedings and DIP Financing will provide the Aleafia Group with the time and stability required to consider potential restructuring transactions and maximize the value of its assets for the benefit of its creditors and other stakeholders. This may include the sale of all or substantially all of the business or assets of the Aleafia Group through a court-supervised sale process. In that regard, the Aleafia Group intends to seek Court approval to launch a sale and investment solicitation process for its business and assets promptly following the Initial Order. The SISP is expected to be administered by the Monitor, with the assistance of the Aleafia Group. In order to fund the CCAA proceedings and other short-term working capital requirements, Aleafia has executed a DIP term sheet with RWB dated as of July 24, 2023 pursuant to which RWB has agreed to advance DIP Financing in the amount of $6,600,000.