Delta 9 Cannabis Inc said it has entered into a binding commitment letter with connectFirst Credit Union Ltd. for $32 million in credit facilities to be offered to the company through First Calgary Financial, a division of connectFirst.
"With this debt financing, Delta 9 has added financial flexibility to optimize its capital structure and is well-positioned to continue to execute its growth strategy," said John Arbuthnot, chief executive officer of Delta 9 in a statement.
"This transaction reflects the strong financial and operating results, which Delta 9 and its team have been able to produce in the wake of cannabis legalization in Canada, and confidence from our new senior lender, connectFirst. To our knowledge, this interest rate is among the most competitive rates established by any public cannabis company to date," he added.
The company said the proposed credit facilities include a $23 million commercial mortgage facility (Facility 1), a $5 million acquisition facility and a $4 million authorized overdraft. Facility 1 matures after five years and amortizes over a 12-year term.
Facility 1 is anticipated to be established in multiple tranches advancing at various times for purposes including:
- $11.2 million for the repayment of existing long-term debt
- $11.8 million for the repayment of the company's 8.5% unsecured convertible debentures due July 17, 2022
The interest rate under the proposed credit facilities is a five-year fixed rate of 4.55% per annum for Facility 1 and connectFirst prime plus 1.50% per annum for the authorized overdraft. Delta 9 said this reflects a blended interest rate reduction of approximately 1.37% versus the company's current long-term credit facilities and an interest rate reduction of approximately 3.95% versus the convertible debentures. The combined interest rate reductions under Facility 1 represent approximately $550,000 in annualized interest savings for the company.
The company noted that the proposed credit facilities would result in approximately $1.2 million in additional operating capital on closing and an additional $470,000 in annualized principal repayment reductions. The proceeds would be used for continued growth and general working capital requirements, it added.
The proposed credit facilities would also provide access to up to $5 million in capital to finance a potential future accretive acquisition, Delta 9 said. The company plans to accelerate its growth plans through acquisitions of EBITDA-(earnings before interest, taxes, depreciation and amortization)-positive cannabis businesses in Canada.
Delta 9 added that it expects to repay its credit facilities with its current bank lender as a part of its closing with connectFirst. The company expects to repay its $11.8 million of convertible debentures on or before the maturity date of July 17, 2022.
"We're very excited about the new partnership between Delta 9 and connectFirst. Delta 9 is one of Canada's most established and recognizable cannabis brands and our senior debt offering will provide capital to continue their growth trajectory," said Craig Zaychkowsky, assistant vice-president, corporate and commercial banking, connectFirst. "This debt offering allows connectFirst to continue to prove that we have our members' backs as we offer the financial tools, passion and expertise for a brighter future."
The proposed credit facilities remain subject to certain pre disbursement conditions and satisfaction of other customary conditions precedent.
Delta 9 is a vertically integrated cannabis company focused on bringing the highest-quality cannabis products to market. The company sells cannabis products through its wholesale and retail sales channels and sells its cannabis grow pods to other businesses.
Delta 9's wholly-owned subsidiary, Delta 9 Bio-Tech Inc, is a licensed producer of medical and recreational cannabis, and operates an 80,000-square-foot production facility in Winnipeg, Manitoba, Canada. Delta 9 owns and operates a chain of retail stores under the Delta 9 Cannabis Store brand.
Contact the author at jon.hopkins@proactiveinvestors.com