Canadian cannabis producer CannTrust said it secured a new investment from a Netherlands-based private equity investment company and that it will soon outline plans to exit creditor protection and change its name.
The multimillion-dollar investment is led by Marshall Fields International B.V., a subsidiary of Kenzoll B.V., a private equity investment company based in the Netherlands.
The deal – disclosed late last week – comes as CannTrust, a federally regulated licensed cannabis producer, is getting back on its feet roughly three years after a whistleblower in mid-2019 alerted Health Canada to unlicensed cultivation the company had been operating.
In a nutshell, the transaction as approved by the Ontario Court of Justice involves:
- An investor group led by Marshall Fields agreed to provide a debtor-in-possession (DIP) loan of 5.5 million Canadian dollars ($3.9 million) to CannTrust Equity. The loan, which is convertible into equity, will rank behind the company’s existing CA$22.5 million DIP loan from Cortland Credit Lending Corp.
- A CA$11.2 million investment to acquire an approximately 90% interest in CannTrust Equity, with CannTrust Holdings retaining the balance.
“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,” CannTrust CEO Greg Guyatt said in a news release issued by the Vaughan, Ontario-based company.
The Dutch investors, for their part, are expected to enter into a unanimous shareholders agreement, which will provide for an option to exchange CannTrust Equity shares for an equal number of CannTrust Holdings shares within 18 months of the closing of the private placement.
The exchange option will be exercisable only if CannTrust Holdings obtains an order from the Ontario Securities Commission (OSC) revoking the “failure-to-file” cease-trade order dated April 13, 2020.
After the private placement closes, CannTrust said it plans to apply to the OSC for an order to revoke the cease-trade order, which could require the filing and restating of audited financial statements as well as the preparation and filing of other disclosures.
The company’s management said it plans to use the proceeds of the new loan and private placement for general working capital purposes.
“We are delighted to have found great partners who share our vision for the future of the company,” Guyatt said in the release.
Guyatt said he expects to exit the Companies’ Creditors Arrangement Act (CCAA) and share the new company name in the coming weeks.
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Kenzoll B.V. said it has business interests in the cannabis space in Africa and the Netherlands.
“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,” Kenzoll B.V owner Corné Melissen said in the release.
The whistleblower’s disclosure led to the suspension of CannTrust’s operator’s licenses because of regulatory infractions as well as former directors of the company being charged with fraud and insider trading under the Ontario Securities Act.
It also led to a large quantity of cannabis being destroyed.
The licenses were reinstated in 2020.
Before it ran into regulatory issues, CannTrust was one of the biggest cannabis companies in Canada with an active medical clientele of 67,000 customers and exports to countries such as Australia and Denmark.
In January, before the latest planned cash infusion, CannTrust had warned it didn’t have sufficient liquidity to operate beyond the near term.
At the time, the company said its fourth CCAA plan had been implemented, resulting in the resignation of four directors.
Matt Lamers can be reached at firstname.lastname@example.org.