Cannabis operator Aleafia enters creditor protection after failed merger

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Financially distressed Canadian cannabis company Aleafia Health has entered creditor protection, shortly after the failure of its attempt to merge with U.S. multistate marijuana operator Red White & Bloom Brands.

The initial creditor protection order, granted by an Ontario court under Canada’s Companies’ Creditors Arrangement Act (CCAA), affects Aleafia and “certain of its Canadian subsidiaries,” including Emblem Cannabis and Canabo Medical Corp., according to a Tuesday news release.

Aleafia and Red White & Bloom (RWB) announced July 14 they had called off the proposed merger after some holders of Aleafia debt declined to accept the terms of a proposed settlement.

RWB is funding Aleafia’s CCAA proceedings via a debtor-in-possession (DIP) loan worth 6.6 million Canadian dollars ($5 million).

“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,” Aleafia said in a release.

“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.”

KSV Restructuring has been appointed as monitor of the CCAA proceedings.

Aleafia is just the latest Canadian cannabis operator to use the CCAA in an attempt to address insolvency.

In 2022, a disproportionate number of Canadian companies using the CCAA were involved in the cannabis industry.

This year, Canadian cannabis retailer Fire & Flower and producer Phoena Group (formerly CannTrust) have received creditor protection under the CCAA, as has Chalice Brands, a Canadian holding company with assets in Oregon.