Judge rejects counterproposal for cannabis firm Fire & Flower sale process

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A counterproposal by a syndicate of parties that opposed a proposed stalking-horse agreement between cannabis retailer Fire & Flower and its largest shareholder, an affiliate of convenience store operator Alimentation Couche-Tard, was rejected by an Ontario judge.

In doing so, the Ontario Superior Court also approved the proposed sale and investment solicitation process (SISP) brought by the Couche-Tard affiliate.

Fire & Flower, headquartered in Toronto, was granted creditor protection in early June under the Companies’ Creditors Arrangement Act (CCAA), allowing the company to maintain day-to-day operations and consult with stakeholders over its future.

Shortly after, in an affidavit filed with the court, Shawn Dym, Fire & Flower’s second-largest shareholder, called the SISP “truncated” and a “fire sale.”

Dym and his syndicate argued the deal wasn’t in the best interest of Fire & Flower or its investors.

The judge sided with the Alimentation Couche-Tard affiliate, which owns approximately 35.7% of Fire & Flower’s issued and outstanding common shares.

“All parties are in agreement about the dire circumstances in which the Applicants find themselves, and about the necessity for fundamental change,” the judge said in the ruling.

“Very material operating losses have been incurred and continue. Similar challenges to those facing the Applicants are facing other operators in the retail cannabis sector as well.”

Dym is co-founder and director of Toronto-based Green Acre Capital Fund II (Canada), which owns roughly 5% of the outstanding common shares of Fire & Flower Holdings.

“At its core, the position of Green Acre is that the business of the Applicants is viable and needs to be recapitalized and restructured, but not sold,” the judge explained.

“It submits that (the Couche-Tard affiliate), as senior secured creditor and also proposed stalking horse bidder, will obtain an unfair advantage if the relief sought is approved, and all potentially available options will not be available for consideration.”

The judge said he was not persuaded that the potential strategic options and alternatives that Green Acre supports are “precluded or foreclosed” by the relief being sought by Fire & Flower.

“On the contrary, I am satisfied that the SISP is appropriate here, and in my view will maximize the value of the business and assets of the Applicants for the benefit of all stakeholders,” the judge concluded.

“It is not as restrictive as is submitted by Green Acre and is specifically intended to solicit interest in, and opportunities for, the Applicants through a variety of different avenues or transaction structures.”

The judge said he does “… not accept the submission of Green Acre that the result will inevitably be a sale of the assets of the Applicants to the exclusion of all other alternatives. That may well be the result, but the SISP will canvass the market for all possible transactions and/or recapitalization alternatives.”

The judge said the alternative structures might include:

  • A sale, or successive sales, of the property and/or the business in whole, or alternatively, in part.
  • An investment, restructuring, recapitalization and/or refinancing.
  • Another form of reorganization of the business.

“There is no prohibition on any stakeholder, specifically including Green Acre, from participating in the process and submitting such proposal or proposals as it may see fit,” the judge said.