CannTrust Holdings, a Vaughan, Ontario-based producer and distributor of cannabis, has secured C$16.7 million in equity and debt financing. The investors were a consortium led by Marshall Fields International, an affiliate of Kenzoll, a Dutch private equity firm. The deal will support the company’s emergence from creditor protection.
VAUGHAN, ON, Feb. 25, 2022 /CNW/ – CannTrust Holdings Inc. (“CannTrust” or the “Company”) (unlisted) today announced that it has secured new investment partners, led by Marshall Fields International B.V. (“Marshall Fields”), a subsidiary of Kenzoll B.V., a Netherlands-based private equity investment company.
“We are delighted to have found great partners who share our vision for the future of the Company. This is the culmination of two and a half years of hard work from the entire CannTrust team. We have remediated and improved our operations, restored our cannabis licenses, relaunched our business, settled all class action litigation against the Company and others, and now secured the right strategic partner.” said Greg Guyatt, Chief Executive Officer, CannTrust. “As we begin this new era, we look forward to exiting CCAA and to sharing our plans for the future in the coming weeks, beginning with our new company name.”
“CannTrust is a high-quality investment opportunity. We’ve been consistently impressed with the current business, its operations and management team and we’re excited to be working together,” said Corné Melissen, Owner, Kenzoll B.V. “Over the past few years, we have assembled business interests in the cannabis space in Africa and the Netherlands, with a world class management team dedicated to finding synergies where possible. We are confident that Canadian legalization will give rise to more jurisdictions following suit, and that CannTrust will provide us with the North American foundation and industry expertise to become a global leader.”
Today, the Ontario Court of Justice approved a proposed transaction pursuant to the Companies Creditors’ Arrangement Act (“CCAA”), along with an extension of its stay order until the earlier of March 25, 2022 or closing of the transaction, at which time the Company expects to exit from its CCAA proceedings. Under the proposed transaction:
An investor group led by Marshall Fields (the “Investors”) has agreed to provide a $5.5 million debtor-in-possession loan (the “New DIP loan”) to CannTrust Equity Inc. (“CannTrust Equity”) and CannTrust Inc. (“CannTrust Opco”), which will rank behind the Company’s existing $22.5 million DIP loan (the “Cortland DIP loan”) from Cortland Credit Lending Corporation;
The Investors, including two members of the Company’s management team (who are not lenders under the New DIP loan), will invest $11.2 million to acquire an approximately 90% equity interest in CannTrust Equity (the “Private Placement”), with CannTrust Holdings retaining the balance of the equity in CannTrust Equity;
The Company’s existing approximately $336 million inter-company loan to CannTrust Opco and the Company’s 50% equity interest in Cannabis Coffee and Tea Pod Company will be assigned to CannTrust Equity; and
Upon closing of the Private Placement, the Investors will enter into a unanimous shareholders agreement (the “USA”). The Company anticipates that the USA will provide for, among other things, an option (the “Exchange Option”), expiring 18 months after the closing date of the Private Placement, permitting the Investors to elect to exchange their CannTrust Equity shares for a like number of CannTrust Holdings shares. The Exchange Option will be exercisable by the Investors only if, among other things, CannTrust Holdings obtains an order from the Ontario Securities Commission (“OSC”) revoking the OSC’s “failure-to-file” Cease Trade Order dated April 13, 2020.
The Company anticipates that the USA will provide that, if the Investors elect to exercise the Exchange Option and acquire control of CannTrust Holdings, the Company will use its commercially reasonable best efforts to initiate a rights offering in accordance with National Instrument 45-106 – Private Placements, offering an opportunity for current CannTrust Holdings shareholders to subscribe for additional common shares of the Company at a price that will be determined by the Company’s board of directors at the time of the rights offering. The rights offering issue price would be lower than the then-existing market price (if the shares are then listed on a stock exchange) or their fair value (if the shares are not then listed).
The New DIP loan will permit the Investors to convert all or part of the principal and interest (accrued and unpaid) under the loan into additional fully paid common shares of CannTrust Equity at the same price per share payable at closing of the Private Placement. If the New DIP loan is fully drawn and the lenders elect to convert the entire New DIP loan into equity, the expected combined ownership of the New Investors in CannTrust Equity will increase to approximately 93% before giving effect to any shares issuable under the rights offering.
CannTrust Equity intends to use the proceeds of the New DIP loan and the Private Placement for general working capital purposes to continue funding its growth strategy. Following closing of the Private Placement, in consultation with the New Investor, the Company intends to work towards applying to the OSC for an order revoking the Cease Trade Order. The Company anticipates that obtaining such an order will require, among other things, the filing and/or restating of audited financial statements and the preparation and filing of certain other public disclosures that are required by applicable securities laws.
The Company intends to convene an annual general meeting of its shareholders within four months of completing the Private Placement.
For more information about CannTrust’s CCAA proceedings, please visit: www.ey.com/ca/canntrust.