Sundial Growers acquires $ 58.9 million of outstanding senior secured debt owed by Zenabis Global

It seems like Sundial producers (NASDAQ: SNDL) is interested in that of Zenabis Global (TSX: ZENA). The company announced this morning that it has acquired a special purchase vehicle via an all-cash transaction, to acquire $ 58.9 million of outstanding senior secured debt owed by Zenabis Investments.

The acquisition of the debt, which was acquired for $ 58.9 million in cash, may be a sign of things to come for Zenabis investors. Currently, the debt carries an interest rate of 14% per annum while also containing a royalty that comes into effect once Zenabis achieves certain cannabis sales targets, with the royalty of up to 3.5% of net cannabis revenues. . In addition, the debt is secured against all cannabis assets related to Zenabis.

Regarding the royalty, the fee begins once the business reaches $ 20.0 million in quarterly net cannabis revenue, with a 3.5% royalty being applied to net cannabis revenue up to revenue of $ 25 million. If the cannabis revenue is between $ 25 million and $ 30 million, the applicable rate drops to 3.0%, and if the revenue is between $ 30 million and $ 37.5 million, the rate drops to 2 , 5%. Finally, if the quarterly net cannabis-related revenues of Zenabis exceed $ 37.5 million, the applicable royalty rate drops to 2.0%. The royalty is in place for 32 fiscal quarters.

More importantly, however, the Debt contains certain principal repayments under the Debt, which includes a lump sum payment of $ 7.0 million due on December 31, 2020.

While Zenabis lenders were previously willing to negotiate their outstanding debt quite frequently, the change in ownership could cause problems for the cannabis operator given that a publicly traded company will likely be less forgiving if payment schedules are not respected. As of September 30, Zenabis only had $ 4.8 million in cash, but it recently announced that it plans to close the sale of Zenabis Delta on December 30 for $ 6.65 million.

If its debt payment is made on time, the business will probably barely be able to pay. Given the timing of transactions, investors will have an overview of the financial form of the business after the debt is paid once the next set of financial statements are filed.

Following the acquisition of the debt, Sundial would have $ 51 million remaining in the company’s coffers.

Sundial Growers last traded at $ 0.46 on the Nasdaq.

Information for this briefing was found via Sedar and Sundial Growers. The author has no title or affiliation related to this organization. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title. The author does not hold any license.

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