Aleafia Health and Red White & Bloom Brands Terminate Merger Amid Debenture Dispute

TORONTO — The anticipated merger between Canadian cannabis company Aleafia Health and U.S. multistate cannabis operator Red White & Bloom Brands has been called off, according to an announcement made by the companies. The proposed merger, initially unveiled in June, faced complications due to disagreements among holders of Aleafia’s convertible debentures, ultimately leading to the termination of the deal.

Aleafia Health, which had been grappling with financial challenges and recently initiated a strategic review following a loan breach, had planned to exchange shares with Red White & Bloom (RWB), resulting in RWB’s shareholders assuming majority ownership of the combined entity. However, the completion of the merger hinged upon the approval of Aleafia’s convertible debenture holders, as the outstanding debts would have been settled as part of the agreement.

In a news release issued on Friday, Aleafia acknowledged that some of the convertible debenture holders were supportive of the proposed merger. However, it was revealed that more than a third of the outstanding debentures’ holders had expressed their refusal to accept the settlement terms outlined in the merger agreement, ultimately derailing the transaction.

Consequently, Aleafia remains in breach of the terms of a senior secured debt agreement, which has now been assumed by Red White & Bloom. While RWB has not yet declared Aleafia in default or taken immediate action to enforce its security, the company emphasized that it has not waived any outstanding breaches and has reserved its rights and remedies as stipulated in the Aleafia senior secured loan agreement and related security.

RWB is currently evaluating all available options in response to the failed merger, maintaining a stance of vigilance regarding its position. Meanwhile, certain members of Aleafia’s board of directors are actively exploring alternative strategic possibilities with the aim of maximizing value for the company’s stakeholders.

Following the news, shares of Aleafia (traded as AH) on the Toronto Stock Exchange opened at CA$0.02 on Monday. The termination of the merger deal casts uncertainty over Aleafia’s future prospects and underscores the challenges faced by cannabis companies amidst a rapidly evolving regulatory landscape.

As both Aleafia Health and Red White & Bloom Brands navigate the aftermath of this failed merger, industry observers will be closely monitoring their next moves and the potential implications for the wider cannabis market.