Delta 9 Cannabis Inc. (TSX: DN) (OTC: DLTNF) obtained an initial order for creditor protection from the Court of King’s Bench of Alberta under the Companies’ Creditors Arrangement Act (CCAA). The initial order provides for a 10-day stay of creditor claims for it and its subsidiaries: Delta 9 Logistics Inc., Delta 9 Bio-Tech Inc., Delta 9 Lifestyle Cannabis Clinic Inc. and Delta 9 Cannabis Store Inc.

Delta 9 also told investors it expects that the Toronto Stock Exchange might consider delisting the company.

In a statement, the company said that the decision to declare the Canadian version of bankruptcy was made after consideration of the cash and liquidity position of the company, the amount of debt, and the company’s inability to repay such debt over the next twelve months. That includes payments to suppliers and trade creditors and the limited ability to raise further capital.

The company also cited aggressive actions by SNDL Inc. on May 21 and July 12, as well as SNDL Inc.’s recent acquisition of its senior secured debt, which also played a material role in the decision to seek creditor protection.

FIKA deal

To fend off the creditors, Delta 9 said it entered into a deal with 2759054 Ontario Inc., which operates as The FIKA Company, to act as plan sponsor to the CCAA proceedings. The FIKA Company is a Canadian cannabis retailer operating 144 stores under multiple banners.

The proposal would see FIKA buying the cannabis retail store business, as well as the logistics and distribution business, while selling the assets of the licensed cannabis production business in exchange for equity of the plan sponsor and the satisfaction of certain secured debt.

FIKA agreed to pay for the bankruptcy proceedings through interim financing and will present one or more plans of compromise or arrangements to the creditors.

“We are pleased to have entered into the Plan Sponsor Term Sheet with FIKA in a series of transactions which we believe will maximize value for our stakeholders, shareholders, and creditors,” said John Arbuthnot, CEO of Delta 9.

FIKA terms

The statement noted that FIKA will provide up to C$16 million in interim financing to fund the CCAA proceedings, including up to C$3 million to fund the costs of the CCAA proceedings and up to C$13 million to repay the secured obligations owing to SNDL Inc. following its senior secured second-lien convertible debenture dated March 30, 2022.

FIKA also proposed repayment of C$27,868,284 of additional secured debt to SNDL, which were recently acquired by SNDL from Connect First and Servus Credit Union Ltd.  FIKA also said it will fund the plan, including a distribution to unsecured creditors of at least C$750,000.

Declining results

Delta 9 last reported its earnings for the first quarter that ended in March. The company reported total net revenue was C$16.5 million versus C$16.9 million for the three months ending March 31, 2023, a decrease of 2%. Sequential net revenue decreased 6% versus C$17.5 million for the three months ending Dec. 31, 2023.

Management attributed the decrease in both year-over-year and sequential net revenue to decreases in B2B and ancillary product revenue in the company’s retail network.

The company also reported a loss from operations in the quarter of C$2.9 million. As of March 31, the company reported a working capital position of negative C$38.7 million.